Medicaid Program; Covered Outpatient Drugs, 5318-5367 [2012-2014]
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DEPARTMENT OF HEALTH AND
HUMAN SERVICES
Centers for Medicare & Medicaid
Services
42 CFR Part 447
[CMS–2345–P]
RIN 0938–AQ41
Medicaid Program; Covered Outpatient
Drugs
Centers for Medicare &
Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
AGENCY:
This proposed rule would
revise requirements pertaining to
Medicaid reimbursement for covered
outpatient drugs to implement
provisions of the Patient Protection and
Affordable Care Act of 2010, as
amended by the Health Care and
Education Reconciliation Act of 2010
(collectively known as the Affordable
Care Act). This proposed rule would
also revise other requirements related to
covered outpatient drugs, including key
aspects of Medicaid coverage, payment,
and the drug rebate program. Therefore,
we are proposing to amend 42 CFR part
447, subpart I to implement specific
provisions of the Affordable Care Act.
DATES: To be assured consideration,
comments must be received at one of
the addresses provided below, no later
than 5 p.m. on April 2, 2012.
ADDRESSES: In commenting, please refer
to file code CMS–2345–P. Because of
staff and resource limitations, we cannot
accept comments by facsimile (FAX)
transmission.
You may submit comments in one of
four ways (please choose only one of the
ways listed):
1. Electronically. You may submit
electronic comments on this regulation
to https://www.regulations.gov. Follow
the instructions under the ‘‘More Search
Options’’ tab.
2. By regular mail. You may mail
written comments to the following
address ONLY:
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, Attention: CMS–
2345–P, P.O. Box 8016, Baltimore,
MD 21244–8016.
Please allow sufficient time for mailed
comments to be received before the
close of the comment period.
3. By express or overnight mail. You
may send written comments to the
following address ONLY:
Centers for Medicare & Medicaid
Services, Department of Health and
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SUMMARY:
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Human Services, Attention: CMS–
2345–P, Mail Stop C4–26–05, 7500
Security Boulevard, Baltimore, MD
21244–1850.
4. By hand or courier. If you prefer,
you may deliver (by hand or courier)
your written comments before the close
of the comment period to either of the
following addresses:
a. For delivery in Washington, DC—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, Room 445–G, Hubert
H. Humphrey Building, 200
Independence Avenue SW.,
Washington, DC 20201.
(Because access to the interior of the
Hubert H. Humphrey Building is not
readily available to persons without
Federal government identification,
commenters must leave their comments
in the CMS drop slots located in the
main lobby of the building. A stamp-in
clock is available for persons wishing to
retain a proof of filing by stamping in
and retaining an extra copy of the
comments being filed. The comments
delivered must also be stamped in to
verify timeliness of submission.)
b. For delivery in Baltimore, MD—
Centers for Medicare & Medicaid
Services, Department of Health and
Human Services, 7500 Security
Boulevard, Baltimore, MD 21244–
1850.
If you intend to deliver your
comments to the Baltimore address,
please call telephone number (410) 786–
7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses
indicated as appropriate for hand or
courier delivery may be delayed and if
received after the comment period
closes may not be considered.
Submission of comments on
paperwork requirements. You may
submit comments on this document’s
paperwork requirements by following
the instructions at the end of the
‘‘Collection of Information
Requirements’’ section in this
document.
For information on viewing public
comments, see the beginning of the
SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Angel Davis, (410) 786–4693, and
Meagan Khau, (410) 786–1357, for
issues related to rebates for line
extensions.
Lisa Ferrandi, (410) 786–5445, for issues
related to the Collection of
Information Requirements.
Joseph Fine, (410) 786–2128, for issues
related to the determination of Best
Price, definition of covered outpatient
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drug and rebates for drugs dispensed
by Medicaid managed care
organizations.
Christine Hinds, (410) 786–4578,
Kimberly Howell, (410) 786–6762,
Terry Simananda, (410) 786–8144, or
Wendy Tuttle, (410) 786–8690, for
issues related to the determination of
Average Manufacturer Price (AMP).
Meagan Khau, (410) 786–1357, for
issues related to the offset of rebates.
Madlyn Kruh, (410) 786–3239, for issues
related to authorized generics,
nominal price, investigational drugs,
and the coverage of tobacco cessation
drugs under the Medicaid State Plan.
Bernadette Leeds, (410) 786–9463, for
issues related to drug rebates.
Gail Sexton, (410) 786–4583, for issues
related to Federal upper limits.
Marge Watchorn, (410) 786–4361, for
issues related to the Regulatory
Impact Analysis.
Wendy Tuttle, (410) 786–8690, for all
other inquiries.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All
comments received before the close of
the comment period are available for
viewing by the public, including any
personally identifiable or confidential
business information that is included in
a comment. We post all comments
received before the close of the
comment period on the following Web
site as soon as possible after they have
been received: https://
www.regulations.gov. Follow the search
instructions on that Web site to view
public comments.
Comments received timely will also
be available for public inspection as
they are received, generally beginning
approximately 3 weeks after publication
of a document, at the headquarters of
the Centers for Medicare & Medicaid
Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday
through Friday of each week from
8:30 a.m. to 4 p.m. To schedule an
appointment to view public comments,
phone 1–(800) 743–3951.
I. Background
A. Introduction
Under the Medicaid program, States
may provide coverage of outpatient
drugs as an optional service under
section 1905(a)(12) of the Social
Security Act (the Act). Section 1903(a)
of the Act provides for Federal financial
participation (FFP) in State
expenditures for these drugs. In general,
in order for payment to be made
available under section 1903 for covered
outpatient drugs, manufacturers must
enter into a Medicaid drug rebate
agreement as set forth in section 1927(a)
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of the Act. Section 1927 of the Act
provides specific requirements for
rebate agreements, drug pricing
submission and confidentiality
requirements, the formulas for
calculating rebate payments, and
requirements for States for covered
outpatient drugs.
This proposed rule would implement
changes to section 1927 of the Act made
by sections 2501, 2503, and 3301(d)(2)
of the Patient Protection and Affordable
Care Act of 2010 (Pub. L. 111–148,
enacted on March 23, 2010), and
sections 1101(c) and 1206 of the Health
Care and Education Reconciliation Act
of 2010 (HCERA) (Pub. L. 111–152,
enacted on March 30, 2010),
(collectively known as the Affordable
Care Act). It would also implement
changes to section 1927 of the Act as set
forth in section 202 of Pub. L. 111–226,
enacted on August 10, 2010 (referred to
as the Education Jobs and Medicaid
Funding Act). This proposed rule would
implement other miscellaneous
provisions pertaining to covered
outpatient drugs. It would implement
changes to section 1927 of the Act as set
forth in section 221 of Division F, Title
II, of the Omnibus Appropriations Act,
2009, (Pub. L. 111–8, enacted on March
11, 2009). It would also codify other
requirements in section 1927 of the Act
pertaining to the Medicaid drug rebate
(MDR) program and revise certain
regulatory provisions presently codified
at 42 CFR part 447, subpart I and make
other changes concerning rebate
requirements. As discussed below, these
proposed revisions are consistent with
the Secretary’s authority set forth in
section 1102 of the Act to publish
regulations that are necessary to the
efficient administration of the Medicaid
program.
B. Changes Made by the Affordable Care
Act
Section 2501(a) of the Affordable Care
Act amended section 1927(c) of the Act
by increasing the minimum rebate
percentage for most single source and
innovator multiple source drugs from
15.1 percent of the average
manufacturer price (AMP) to 23.1
percent of AMP. Section 2501(a) of the
Affordable Care Act also amended
section 1927(c) of the Act by
establishing a minimum rebate
percentage of 17.1 percent of AMP for
certain single source and innovator
multiple source clotting factors and
single source and innovator multiple
source drugs approved by the Food and
Drug Administration (FDA) exclusively
for pediatric indications. Section
2501(a) of the Affordable Care Act also
added section 1927(b)(1)(C) to the Act to
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make changes to the non-Federal share
of rebates by specifying that the
amounts attributable to the increased
rebate percentages be remitted to the
Federal government. The amendments
made by section 2501(a) of the
Affordable Care Act were effective
January 1, 2010.
Section 2501(b) of the Affordable Care
Act amended section 1927(c) of the Act
by increasing the rebate percentage for
noninnovator multiple source drugs
from 11 percent of AMP to 13 percent
of AMP, effective January 1, 2010.
Section 2501(c) of the Affordable Care
Act amended section 1903(m) of the Act
by specifying new conditions for
managed care organization (MCO)
contracts, including that covered
outpatient drugs dispensed to
individuals eligible for medical
assistance under Title XIX of the Act
who are enrolled with a Medicaid MCO
shall be subject to the same rebate
required by the rebate agreement
authorized under section 1927 of the
Act. The Affordable Care Act also
amended section 1903(m) of the Act to
establish that MCO capitation rates shall
be based on actual cost experience
related to rebates and subject to Federal
regulations at § 438.6 regarding actuarial
soundness of capitation payments. The
legislation also provided that MCOs are
responsible for reporting to the State
certain utilization data and such other
data as the Secretary determines
necessary for the State to access the
rebates authorized by this provision.
Section 2501(c) of the Affordable Care
Act also made conforming amendments
to section 1927(b) of the Act by
requiring manufacturers that participate
in the MDR program to provide rebates
for drugs dispensed to individuals
enrolled with a MCO, if the MCO is
responsible for coverage of such drugs.
It also amended section 1927(b) of the
Act by requiring States to include
information on drugs paid for by
Medicaid MCOs under the State plan
during the rebate period when
requesting rebates from manufacturers.
Finally, section 2501(c) modified
section 1927(j)(1) of the Act to specify
that covered outpatient drugs are not
subject to the rebate requirements if
such drugs are both subject to discounts
under section 340B of the Public Health
Service Act (PHSA) and dispensed by
health maintenance organizations
(HMOs), including Medicaid MCOs. The
amendments made by section 2501(c)
were effective March 23, 2010.
Section 2501(d) of the Affordable Care
Act, as revised by section 1206(a) of
HCERA, added a new subparagraph (C)
to section 1927(c)(2) of the Act, effective
for drugs paid for by a State on or after
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January 1, 2010. This provision modifies
the unit rebate amount (URA)
calculation for a drug that is a line
extension (new formulation) of a single
source or innovator multiple source
drug that is an oral solid dosage form.
Section 2501(e) of the Affordable Care
Act amended section 1927(c)(2) of the
Act by adding a new subparagraph (D)
and establishing a maximum on the
total rebate amount for each single
source or innovator multiple source
drug at 100 percent of AMP, effective
January 1, 2010.
Section 2501(f) of the Affordable Care
Act made conforming amendments to
section 340B of the Public Health
Service Act, which are not addressed in
this proposed rule.
Section 2503(a) of the Affordable Care
Act amended section 1927(e) of the Act
by revising the Federal upper
reimbursement limit to be no less than
175 percent of the weighted average
(determined on the basis of utilization)
of the most recently reported monthly
AMPs for pharmaceutically and
therapeutically equivalent multiple
source drug products that are available
for purchase by retail community
pharmacies on a nationwide basis.
Additionally, it specifies that the
Secretary shall implement a smoothing
process for AMP which shall be similar
to the smoothing process used in
determining the average sales price
(ASP) of a drug or biological under
Medicare Part B. It amended section
1927(k) of the Act by revising the
definition of AMP to mean the average
price paid to the manufacturer for the
drug in the United States by wholesalers
for drugs distributed to retail
community pharmacies and retail
community pharmacies that purchase
drugs directly from the manufacturer.
It also amended the definition of
multiple source drug to specify, in part,
that a covered outpatient drug qualifies
as a multiple source drug if at least one
other therapeutically equivalent drug
product is sold or marketed in the
United States, as opposed to in a State,
during the rebate period. It added to
section 1927(k) of the Act definitions of
retail community pharmacy and
wholesaler for purposes of section 1927
of the Act.
Section 2503(b) of the Affordable Care
Act amended section 1927(b) of the Act
by establishing a requirement that
manufacturers report, not later than 30
days after the last day of each month of
a rebate period under the agreement, on
the manufacturer’s total number of units
that are used to calculate the monthly
AMP for each covered outpatient drug.
It also amended the preexisting
requirement that the Secretary disclose
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AMPs to instead require the Secretary to
post, on a Web site accessible to the
public, the weighted average of the most
recently reported monthly AMPs and
the average retail survey price
determined for each multiple source
drug in accordance with section 1927(f)
of the Act.
Section 2503(c) of the Affordable Care
Act amended section 1927(f) of the Act
by clarifying that the survey of retail
prices described in such subsection
applies to retail community pharmacies.
Section 2503(d) of the Affordable Care
Act specified that the amendments
made by section 2503 of the Affordable
Care Act were effective October 1, 2010.
Section 2503(d) of the Affordable Care
Act further specified that the
amendments made by section 2503 shall
take effect without regard to whether
final regulations to carry out such
amendments have been issued by
October 1, 2010.
Section 3301(d)(2) of the Affordable
Care Act included a conforming
amendment to the definition of ‘‘best
price’’ under Medicaid at section
1927(c)(1)(C) of the Act. This
amendment provides that any discounts
provided by manufacturers under the
Medicare coverage gap discount
program under section 1860D–14A of
the Act are exempt from a
manufacturer’s best price calculation,
effective for drugs dispensed on or after
July 1, 2010.
Section 7101(a) of the Affordable Care
Act expanded the drug discount
program under section 340B of the
Public Health Service Act (PHSA) to
include certain children’s hospitals,
freestanding cancer hospitals, critical
access hospitals, rural referral centers
and sole community hospitals.
Section 204 of the Medicare and
Medicaid Extenders Act of 2010 (Pub. L.
111–309) revised section 340B of the
PHSA by removing children’s hospitals
from the orphan drug exclusion
described in section 2302 of HCERA.
Section 1101(c) of HCERA also
includes a conforming amendment to
the definition of AMP under Medicaid
at section 1927(k) of the Act by
providing that discounts provided by
manufacturers under the Medicare
coverage gap discount program under
section 1860D–14A of the Act are
excluded from a manufacturer’s
determination of AMP, effective March
30, 2010.
C. Final Rule With Comment Period
Published July 17, 2007
On July 17, 2007, CMS published a
final rule with comment period in the
Federal Register (72 FR 39142). The
purpose of the final rule with comment
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period was to finalize the provisions of
the proposed rule CMS published in the
Federal Register on December 22, 2006
(71 FR 77174) and to allow for further
public comment on the AMP and
Federal upper limit (FUL) outlier
sections of the final rule. We received a
variety of comments from drug
manufacturers, membership
organizations, wholesalers, law firms,
PBMs, consulting firms and pharmacists
in support of, and raising concerns with,
the AMP and FUL provisions. However,
we note that these regulatory provisions
were withdrawn through the final rule
published in the November 15, 2010
Federal Register (75 FR 69591).
Accordingly, we will not be considering
the comments received on the July 17,
2007, rule in this rulemaking document.
Further, because the Affordable Care
Act made substantial changes to the
AMP and FUL provisions in section
1927 of the Act, we no longer expect to
publish that final rule and we do not
expect to address those comments in
subsequent rulemaking.
D. Other Changes Concerning the
Medicaid Drug Rebate Program
We are also proposing changes to
address other program issues related to
covered outpatient drugs, including key
aspects of Medicaid payment and the
MDR program, such as reimbursement
to pharmacies for the ingredient cost of
a drug, determination of AMP for
authorized generic drugs, and the
inclusion of territories in the MDR
program. These changes are described in
greater detail below under section II.
Provisions of the Proposed Regulations.
II. Provisions of the Proposed
Regulations
This proposed rule would revise
regulations concerning the MDR
program, set forth at section 1927 of the
Act. It implements, consistent with our
general rulemaking authority, sections
2501, 2503, and 3301(d)(2) of the
Affordable Care Act and sections
1101(c) and 1206 of HCERA, which
revise requirements concerning the
rebate program and payments for
prescription drugs under the Medicaid
program. The specific provisions we
propose are described in detail below.
A. Basis and Purpose (§ 447.500)
Section 2501(c) of the Affordable Care
Act established new requirements for
manufacturers that participate in the
MDR program to pay rebates for drugs
dispensed to individuals enrolled with
a Medicaid MCO if the MCO is
responsible for coverage of such drugs.
We propose to add § 447.500(a)(4)
which would specify sections
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1903(m)(2)(A)(xiii) and 1927(b) of the
Act as the basis for rebates for covered
outpatient drugs dispensed to
individuals eligible for medical
assistance who are enrolled in Medicaid
MCOs. We propose to add
§ 447.500(a)(5) which would add section
1902(a)(30)(A) as an additional basis for
calculating payments for covered
outpatient drugs.
B. Definitions (§ 447.502)
1. Actual Acquisition Cost
States generally reimburse pharmacies
for covered outpatient drugs that are
prescribed and dispensed to Medicaid
beneficiaries based on a two-part
formula, which addresses the ingredient
cost of a drug and a reasonable
dispensing fee. Each State has the
flexibility to determine the amount it
will reimburse for each component of
the formula based on the agency’s best
estimate of the price generally and
currently paid by providers for a drug
marketed or sold by a particular drug
labeler and the cost associated with
ensuring that possession of the
appropriate covered outpatient drug is
transferred to a Medicaid beneficiary.
These reimbursement formulas are
subject to review and approval by CMS
through the State plan amendment
(SPA) process.
In general, States currently reimburse
for the covered outpatient drug based, in
part, on the estimated acquisition cost
(EAC). The EAC, as currently defined in
Federal regulations at § 447.502 is the
agency’s best estimate of the price
generally and currently paid by
providers for a drug marketed or sold by
a particular manufacturer or labeler in
the package size of drug most frequently
purchased by providers. We are
proposing to both rename and revise
this definition in this proposed rule.
Section 1902(a)(30)(A) of the Act
requires, in part, that States have
methods and procedures to assure that
payment for Medicaid care and services
is consistent with efficiency, economy,
and quality of care. In accordance with
these provisions and in light of the OIG
reports concerning published prices
(OIG Audit reports—A–06–00–00023,
A–06–01–00053, A–06–02–00041),1 we
believe it is necessary for States to have
a more accurate reference price to base
reimbursement for prescription drugs.
Therefore, we propose to replace the
term, ‘‘estimated acquisition cost’’ with
‘‘actual acquisition cost’’ (AAC). We
believe that changing this definition for
1 https://oig.hhs.gov/oas/reports/region6/
60000023.htm; https://oig.hhs.gov/oas/reports/
region6/60100053.htm; https://oig.hhs.gov/oas/
reports/region6/60200041.htm.
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the drug ingredient component of the
reimbursement formula to AAC will be
more reflective of actual prices paid, as
opposed to estimates based on
unreliable published compendia
pricing. While we recognize that States
may not be able to determine the actual
price of each individual drug, payment
based on an average of the actual
acquisition costs from a number of
representative pharmacies would still fit
within this definition, as data used in
the calculation of the average
acquisition cost would be reflective of
actual purchase prices for pharmacy
providers. Within this framework, States
can develop payment methodologies
consistent with this regulatory
definition for their Medicaid pharmacy
reimbursement. Therefore, in § 447.502,
we propose to define actual acquisition
cost as the agency’s determination of the
actual prices paid by pharmacy
providers to acquire drug products
marketed or sold by specific
manufacturers. This issue and its
possible effects on ingredient cost
reimbursement is discussed further in
both § 447.512 Drugs: Aggregate upper
limits of payment and § 447.518 State
plan requirements, findings, and
assurances.
2. Authorized Generic Drug
The definition of ‘‘authorized generic
drug’’, presently set forth in
§ 447.506(a), applies to rebate
calculations, as set forth in subpart I
‘‘Payment for Drugs.’’ Therefore, we
propose to remove the definition of
‘‘Authorized generic drug’’ from
§ 447.506 and move this definition to
§ 447.502. We would continue to define
the term ‘‘Authorized generics drugs’’ as
any drug sold, licensed or marketed
under an NDA approved by the FDA
under section 505(c) of the Federal Food
Drug and Cosmetic Act (FFDCA) that is
marketed, sold or distributed under a
different labeler code, product code,
trade name, trademark, or packaging
(other than repackaging the listed drug
for use in institutions) than the listed
brand drug.
For purposes of the MDR Program, an
authorized generic is any drug product
marketed under the innovator or brand
manufacturer’s New Drug Application
(NDA) approved under section 505(c) of
the FFDCA, but labeled with a different
NDC than the innovator or brand
product. Authorized generics are
categorized as innovator multiple source
drugs for the purpose of computing the
drug rebate.
3. Bona Fide Service Fee
In the July 17, 2007 AMP final rule,
we defined bona fide service fees as fees
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paid by a manufacturer to an entity that
represent fair market value for a bona
fide, itemized service actually
performed on behalf of the manufacturer
that the manufacturer would otherwise
perform (or contract for) in the absence
of the service arrangement and that are
not passed on in whole or in part to a
client or customer of an entity, whether
or not the entity takes title to the drug.
The Affordable Care Act specifies that
the AMP shall exclude bona fide service
fees paid by manufacturers to
wholesalers or retail community
pharmacies including, but not limited
to, distribution service fees, inventory
management fees, product stocking
allowances, and fees associated with
administrative service agreements and
patient care programs (such as
medication compliance programs and
patient education programs). In
§ 447.502, we propose to revise our
current definition of bona fide service
fees to include these fees paid by
manufacturers to wholesalers or retail
community pharmacies.
4. Bundled Sales
In the AMP final rule published on
July 17, 2007, bundled sale was defined
as an arrangement, regardless of
physical packaging, under which the
rebate, discount, or other price
concession is conditioned upon the
purchase of the same drug, drugs of
different types (that is, at the nine-digit
National Drug Code (NDC) level) or
another product or some other
performance requirement (for example,
the achievement of market share,
inclusion or tier placement on a
formulary), or where the resulting
discounts or other price concessions are
greater than those which would have
been available had the bundled drugs
been purchased separately or outside
the bundled arrangement. For bundled
sales, the discounts are allocated
proportionally to the total dollar value
of the units of all drugs sold under the
bundled arrangement. For bundled sales
where multiple drugs are discounted,
the aggregate value of all the discounts
in the bundled arrangement must be
proportionally allocated across all the
drugs in the bundle. In response to
manufacturer questions regarding
whether a discount and resulting price
for each product in a single customer
contract that is independent and not
contingent on the discount or pricing of
any other product in the contract should
be applied across all products; we stated
previously that where a discount or
price concession is established
independently and not conditioned
upon any other purchase or
performance requirement (for example
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the achievement of market share,
inclusion or tier placement on a
formulary), or where the discount is not
greater than if purchased outside of
multi-product arrangement, there is no
bundle within the meaning described in
§ 447.502. Though this is not addressed
in the Affordable Care Act, we continue
to agree with our response to this issue
and thus have decided to include it in
this discussion in order to further clarify
the bundled sale definition. Therefore,
we propose to add the following
clarifying statement to the definition of
bundled sale: The discounts in a
bundled sale, including but not limited
to those discounts resulting from a
contingent arrangement, are allocated
proportionally to the total dollar value
of the units of all drugs sold under the
bundled arrangement.
5. Clotting Factor
The Affordable Care Act established a
minimum rebate percentage of 17.1
percent of AMP for a single source drug
or an innovator multiple source drug
that is a clotting factor for which a
separate furnishing payment is
authorized under section 1842(o)(5) of
the Act and which is included on a list
of such factors specified and updated
regularly by the Secretary. Consistent
with these provisions, we propose to
define clotting factors as those drugs or
products for which a separate furnishing
payment is authorized under section
1842(o)(5) of the Act and which are
included on a list of such factors
specified and updated quarterly by
CMS.
6. Covered Outpatient Drug
In accordance with section 1927 of
the Act, manufacturers that have
entered into a Rebate Agreement with
the Secretary are responsible for paying
rebates to States for their covered
outpatient drugs for which payment has
been made under the state plan.
Manufacturers are responsible for
submitting required drug product data,
including each drug’s NDC. This NDC
information is placed on the MDR file
and used for assuring compliance with
the statutory requirements.
There have been products identified
in the drug product data file that do not
meet the definition of a covered
outpatient drug. Therefore, we believe it
is necessary to provide clarification
regarding the definition of a covered
outpatient drug in section 1927(k)(2) of
the Act and the limiting definition at
section 1927(k)(3) of the Act.
Accordingly, we propose to add a
definition of covered outpatient drug to
§ 447.502.
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We propose that a drug is considered
a covered outpatient drug when the
drug may be dispensed only upon
prescription (except as discussed below
with respect to certain non-prescription
drugs), and it meets the following
criteria as described in section
1927(k)(2) of the Act:
• The drug has been approved for
safety and effectiveness as a
prescription drug by the FDA under
section 505 or 507 of the FFDCA where
the manufacturer has obtained a NDA or
under section 505(j) of the FFDCA
where the manufacturer has obtained an
Abbreviated New Drug Application
(ANDA);
• The drug was commercially used or
sold in the United States before the date
of the enactment of the Drug
Amendments of 1962, or is identical,
similar or related (within the meaning of
section 310.6(b)(1) of title 21 of the CFR)
to such a drug; and has not been the
subject of a final determination by the
Secretary that it is a ‘‘new drug’’ (within
the meaning of section 201(p) of the
Federal Food, Drug, and Cosmetic Act)
or an action brought by the Secretary
under section 301, 302(a), or 304(a) of
such Act to enforce section 502(f) or
505(a) of such Act;
• The drug is one which is described
in section 107(c)(3) of the Drug
Amendments of 1962 and for which the
Secretary has determined there is a
compelling justification for its medical
need or is identical, similar, or related
to such a drug and for which the
Secretary has not issued a notice for an
opportunity for a hearing under section
505(e) of the FFDCA on a proposed
order of the Secretary to withdraw
approval of an application for such drug
under the FFDCA because the Secretary
has determined that the drug is less than
effective for some or all conditions of
use prescribed, recommended or
suggested in its labeling;
• The drug is a biologic product,
other than a vaccine which—
(1) May only be dispensed upon
prescription,
(2) Is licensed under section 351 of
the Public Health Service Act, and
(3) Is produced at an establishment
licensed under such section to produce
such product; or
• The drug is insulin certified under
section 506 of the FFDCA.
Consistent with section 1927(k)(3) of
the Act, we propose that, except as
discussed below, a drug, biological
product, or insulin would not be
considered a covered outpatient drug
when that drug or product is billed as
a bundled service with, and provided as
part of or incident to and in the same
setting as, any of the following services:
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• Inpatient Hospital Services;
• Hospice Services;
• Dental Services, except that drugs
for which the State plan authorizes
direct reimbursement to the dispensing
dentist are covered outpatient drugs;
• Physician services;
• Outpatient hospital services;
• Nursing facility and services
provided by an intermediate care
facility for the mentally retarded;
• Other laboratory and x-ray services;
or
• Renal dialysis.
We further propose that the above
exemptions to the definition of covered
outpatient drug for combined services
would not apply if the drug is carved
out and billed separately from the
service (for example, an infusion drug
and x-ray are billed separately, not as a
composite radiology service; therefore,
the infusion drug is a covered outpatient
drug).
Additionally, section 1927(k)(3) of the
Act provides that the definition of
covered outpatient drug does not
include any such drug or product for
which a NDC number is not required by
the FDA or a drug or biological used for
a medical indication which is not a
medically accepted indication. We note
that for the purposes of the MDR we use
an NDC format at either the NDC–9,
which includes the labeler code and
product code, to identify the product
information, or the NDC–11, which
includes the labeler code, product code,
and the package code, to identify the
product’s package information. We are
aware that FDA has a slightly different
NDC format than what is used in the
MDR program. (Please see the
discussion under the definition of NDC.)
For the purpose of the MDR program,
we will continue to use the current NDC
format of NDC–9, which includes the
labeler code and the product code, to
identify the product information and
NDC–11, which includes the labeler
code, product code, and package code,
to identify the product’s package
information. However, if there is change
to the current NDC format as a result of
FDA action, then we will issue
guidance, as necessary, to notify the
public as well as to explain its impact
on the MDR program.
We are not involved with and do not
have oversight for the designation of the
NDC. The FDA requires NDCs for drugs
that must be listed with the FDA in
accordance with Federal Food, Drug,
and Cosmetics Act (FFDCA), as
amended by the Food and Drug
Administration Amendments Act of
2007 (FDAAA) (Pub. L. 110–85). (21
CFR 207.25(b)(8)). The FDAAA
amended section 510(p) of the FFDCA
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(21 U.S.C 360) to explicitly require that
registration and listing information
(including the submission of updated
information) required under section 510
of the FFDCA, which includes
information from both domestic and
foreign establishments, be submitted by
electronic means, unless the Secretary
of Health and Human Services grants a
request for waiver of this requirement
because use of electronic means is not
reasonable for the person requesting the
waiver.
Section 1927(k)(3) of the Act provides
that a covered outpatient drug does not
include any such drug or product for
which an NDC number is not required
by the FDA. However, in accordance
with section 1927(k)(2), and the
requirements of section 510 of the
FFDCA, we propose that a drug,
whether prescription or over-thecounter (OTC), would only be treated as
a covered outpatient drug if the drug is
both required to have an NDC and is
listed electronically with the FDA. We
believe this additional standard is
needed to ensure compliance with the
prescribed drug provisions, FDA
approval provisions, and the NDC
listing provisions. Furthermore, this
proposal is necessary in order for us to
assure compliance with the drug rebate
submission requirements, for CMS to
verify State utilization data and
manufacturer product data, and to
assure the correct calculation of the
offset amounts mandated by the
Affordable Care Act. Additionally, this
proposal aligns with a proposal
submitted as part of the fiscal year (FY)
2012 President’s Budget to require drugs
to be properly listed electronically with
the FDA as a requirement to be covered
under Medicaid.
Therefore, if a manufacturer is
required to list all of its NDCs
electronically with the FDA, this would
ensure that all the products in the MDR
program meet the definition of section
1927(k)(3) of the Act. In addition, it
would permit us to verify State and
manufacturer submissions by
referencing the FDA’s electronic drug
listing information.
Manufacturers are required to update
their registration and listing information
electronically in accordance with FDA’s
current registration and listing
requirements.
Additionally, in order for us to fully
implement these provisions, we are
requiring that manufacturers submit any
relevant approved FDA application
numbers. When a product is listed with
the FDA, the manufacturer is required to
provide to the FDA the NDC and the
application number, if any, for the
product (21 CFR 207.25(b)). An
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application number will help CMS find
information on the approval status to
market a drug. See https://www.fda.gov/
Drugs/InformationOnDrugs/
ucm079436.htm. The application
number assists CMS in obtaining
information from FDA as to whether a
drug has been approved under a NDA
under section 505 of FFDCA or an
ANDA under section 505(j) of FFDCA.
This information is critical to the
definition of a covered outpatient drug
under section 1927(k)(2) of the Act.
Under the MDR program reporting
requirements, drug manufacturers are
required to report to CMS a drug
category for each NDC. The drug
category represents whether an NDC is
classified as a brand name drug (single
source drug (S) or innovator multiple
source drug (I)) or a generic drug
(noninnovator multiple source drug
(N)). We use these drug category
indications to determine the appropriate
rebate percentage to calculate the unit
rebate amounts, as well as the offset
amounts under the Affordable Care Act.
We are also aware that some products
that do not have an approved
application number may be covered
outpatient drugs. For example, we
believe that certain products, such as
prenatal prescription vitamins,
potassium chloride, codeine sulfate, and
hydrocortisone acetate may fall into this
category. If a product does not have an
FDA application number, in order to be
considered a covered outpatient drug,
the manufacturer must provide evidence
demonstrating that its products meet the
statutory definition of a covered
outpatient drug under section 1927(k)(2)
to 1927(k)(4). We will refer to this
evidence of demonstration as covered
outpatient drug status, or COD status.
We are seeking public comments on this
requirement, and in particular,
comments identifying drugs or classes
of drugs that do not have approved
applications but should be deemed
covered outpatient drugs.
This submission of data would
provide critical information needed to
calculate and verify the accuracy of
such drug information.
Therefore, we propose that
manufacturers report to CMS the
number of an approved FDA application
for a product or otherwise show that the
product meets the statutory definition of
a covered outpatient drug under
sections 1927(k)(2) and (3) of the Act, in
order for CMS to calculate the offset
amounts and validate product data to
ensure the correct rebate calculation for
each NDC in the MDR Program. By
having a correct approved FDA
application number or the COD status,
CMS can more accurately determine the
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unit rebate amounts and product
classification, critical to the rebate
percentage calculation.
7. Customary Prompt Pay Discounts
In § 447.502, we propose to add a
definition of customary prompt pay
discount to ensure consistent
application of such discounts among
manufacturers when calculating AMP.
Therefore, we propose to define
customary prompt pay discounts as any
discount off of the purchase price of a
drug routinely offered by the
manufacturer to a wholesaler for prompt
payment of purchased drugs within a
timeframe that is consistent with its
customary business practices for
payment.
8. Innovator Multiple Source Drug
As currently defined in § 447.502, an
innovator multiple source drug means a
multiple source drug that was originally
marketed under an original new drug
application (NDA) approved by the
FDA, including an authorized generic
drug. It also includes a drug product
marketed by any cross-licensed
producers, labelers, or distributors
operating under the NDA and a covered
outpatient drug approved under a
product license approval (PLA),
establishment license approval (ELA), or
antibiotic drug approval (ADA). In this
rule, we propose to add multiple source
drugs originally marketed under a BLA
as the BLA approval process is a
successor to the PLA and ELA and drugs
sold under a BLA are explicitly
referenced in the definition of single
source drug. To ensure that the correct
drug category is reported for an
innovator multiple source drug, as was
discussed in Manufacturer Release #82,
we wish to remind manufacturers, as is
consistent with current policy, that an
innovator multiple source (I) drug
should be reported to CMS for a brand
name drug that has therapeutic
equivalents available. To determine if
therapeutic equivalents are available for
a brand name drug or not, you can
access the FDA’s Drugs@FDA at https://
www.accessdata.fda.gov/scripts/cder/
drugsatfda/index.cfm?
fuseaction=Search.Addlsearch_drug_
name and search by the Application
Number. If therapeutic equivalents are
available, then you will see the link to
‘‘Therapeutic Equivalents’’ in the
‘‘Drugs Details’’ page. If there are
therapeutic equivalents available for the
NDA or BLA, then the brand name drug
should be reported as an innovator
multiple source drug (I) to CMS.
Additionally, over the course of the
MDR program, questions have arisen
regarding whether an ‘‘original NDA’’ is
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the same as an NDA and whether the
drug category may be different if a drug
is approved under an NDA. We are
proposing to clarify that, for purposes of
the MDR program, an original NDA is
equivalent to an NDA filed by the
manufacturer for approval under section
505 of the FFDCA for purposes of
approval by the FDA for safety and
effectiveness. In light of this definition,
we are also proposing to use the term
‘‘NDA’’ when addressing such
application types for brand name drugs
and not use the term ‘‘original NDA’’
when referring to such drugs throughout
this proposed rule.
9. Line Extension Drug (New
Formulation)
The Affordable Care Act established a
separate calculation for the unit rebate
amount for a drug that is a line
extension of a single source drug or an
innovator multiple source drug that is
an oral solid dosage form. Section
1927(c)(2)(C) of the Act, added by
section 2501(d) of the Affordable Care
Act, defines line extension to mean a
new formulation of a drug, such as an
extended release formulation. We
propose to define line extension as a
single source or innovator multiple
source drug that is an oral solid dosage
form that has been approved by the
FDA, listed in Drugs@FDA https://www.
accessdata.fda.gov/scripts/cder/
drugsatfda/application file, as a change
to the initial brand name listed drug in
that it represents a new version of the
previously approved listed drug, such as
a new ester, a new salt or other
noncovalent derivative; a new
formulation of a previously approved
drug; a new combination of two or more
drugs; or a new indication for an already
marketed drug. We propose that
regardless of whether the drug is
approved under an NDA or a
supplemental NDA, if the change to the
drug is assigned to one of the above
changes, it will be considered a line
extension drug.
These modifications to the initial
brand name listed drug are often
approved under section 505(b)(2) of the
FFDCA. A section 505(b)(2) application
is a new drug application submitted
under section 505(b)(1) and approved
under section 505(c) of the FFDCA. A
section 505(b)(2) application is one for
which one or more of the investigations
relied upon by the applicant to show
whether a drug is safe and effective
were not conducted by or for the
applicant and for which the applicant
has not obtained a right of reference or
use from the person by or for whom the
investigations were conducted. Section
505(b)(2), as described in FDA
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regulations at 21 CFR 314.54, may be
used in certain circumstances to seek
approval of a drug product that
represents a modification to a listed
drug product. Examples of drugs that
have been approved under the 505(b)(2)
application include drugs with a new
formulation, dosing regimen, change in
active ingredient (such as a different salt
or ester, combination product), and/or
new drug indication. These types of
drugs are assigned a Chemical Type by
the FDA for the new drug application.
A section 505(b)(2) application may be
granted 3 years of exclusivity, may be
eligible for orphan drug exclusivity or
pediatric exclusivity. We have included
these changes within our definition of
line extension drugs. (See G.2.
Treatment of New Formulations for
further explanation of CMS’ proposal.)
10. Manufacturer
For purposes of the MDR Program, we
propose to clarify our current definition
of manufacturer by revising it to state
that a ‘‘manufacturer means any entity
that holds the NDC for a covered
outpatient drug or biological product’’.
This change in terminology is not
intended change the scope of the
definition.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
11. Multiple Source Drug
On November 15, 2010, we published
the ‘‘Medicaid Program; Withdrawal of
Determination of Average Manufacturer
Price, Multiple Source Drug Definition,
and Upper Limits for Multiple Source
Drugs’’ final rule in the Federal Register
(75 FR 69591). That final rule withdrew
the regulatory definition of multiple
source drug. As previously noted,
section 2503(a)(3) of the Affordable Care
Act amended the definition of multiple
source drug set forth in section
1927(k)(7) of the Act.
Therefore, in accordance with section
1927(k)(7) of the Act, as revised, we
propose to define multiple source drug
in § 447.502 as a covered outpatient
drug for which there is at least one other
drug product which—
(1) Is rated as therapeutically
equivalent. For the list of drug products
rated as therapeutically equivalent, we
will use the FDA’s most recent
publication of ’’Approved Drug
Products with Therapeutic Equivalence
Evaluations’’ which is currently
available at https://www.fda.gov/cder/
orange/default.htm or which can be
viewed at the FDA’s Freedom of
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Information Public Reading Room at
5600 Fishers Lane, Rm. 12A–30,
Rockville, MD 20857;
(2) Is pharmaceutically equivalent and
bioequivalent, as determined by the
FDA; and
(3) Is sold or marketed in the United
States during the rebate period.
12. National Drug Code
The Drug Listing Act of 1972 requires
each registered drug establishment to
provide the FDA with a current list of
all drugs manufactured, prepared,
propagated, compounded, or processed
by it for commercial distribution. (See
section 510 of the FFDCA (21 U.S.C.
360)). Drug products are identified and
listed with FDA using a unique
identifier called the National Drug Code
(NDC). Under FDA regulations in 21
CFR part 207, the NDC is identified as
a 10-digit, 3-segment number. The first
segment, the labeler code, is assigned by
the FDA. A labeler is a firm that
manufactures the drug, including a
repacker or relabeler, or a firm that
distributes the drug under its own trade
name or label. The second segment, the
product code, identifies a specific
strength, dosage form, and formulation
for a particular firm. The third segment,
the package code, identifies the trade
package size and type. Both the product
and package codes are assigned by the
firm. The NDC will be in one of the
following configurations: 4–4–2, 5–3–2,
or 5–4–1.
In this proposed rule, we clarify that
even though FDA currently uses a
unique 10-digit NDC, for the purposes of
the MDR program and this subpart we
will continue to use an NDC format with
the NDC–9, which includes the labeler
code and the product code, to identify
the product information and the NDC–
11, which includes the labeler code,
product code, and package code, to
identify the product’s package
information. Manufacturers may include
a leading zero in the product code or the
package code segments of the NDC in
order to arrive at the 5–4 NDC–9 or 5–
4–2 NDC–11 when reporting their
product to the MDR program.
13. Noninnovator Multiple Source Drug
As currently defined in § 447.502, a
noninnovator multiple source drug
means: (1) A multiple source drug that
is not an innovator multiple source drug
or a single source drug, (2) a multiple
source drug that is marketed under an
abbreviated NDA (ANDA) or an
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abbreviated antibiotic drug application,
and (3) a drug that entered the market
before 1962 that was not originally
marketed under an NDA.
In addition to a noninnovator
multiple source drug as described,
currently, there are other drugs on the
market that have not gone through the
FDA approval process, including but
not limited to certain prescription prenatal vitamins.
Therefore, we propose to amend the
definition of a noninnovator multiple
source drug to also include these other
drugs that have not gone through FDA
approval process but otherwise meet the
definition of ‘‘covered outpatient drug’’.
However, if any of the drug products
listed in this amended definition of a
noninnovator multiple source drug
subsequently receives a new NDA or
ANDA approval from the FDA, the
manufacturer must change the reporting
of the product’s drug category to
correlate with the new product
application type and furnish the
appropriate information.
We also propose to amend the
definition of noninnovator multiple
source drug to clarify that for purposes
of Medicaid payment and rebate
calculations, the term shall include
noninnovator drugs that are not
therapeutically equivalent.
14. Oral Solid Dosage Form
CMS proposes to interpret oral solid
dosage form in accordance to the FDA
regulation at 21 CFR 206.3, which
defines solid oral dosage form to mean
capsules, tablets, or similar drug
products intended for oral use. We also
clarify that although FDA regulations at
21 CFR 206.3 uses the term ‘‘solid oral
dosage form,’’ section 1927(c)(2)(C)
specifically used the term ‘‘oral solid
dosage form’’ in reference to the
treatment of new formulations.
Therefore, CMS will treat the term ‘‘oral
solid dosage form’’ to mean the same as
FDA’s ‘‘solid oral dosage form.’’
CMS proposes to further interpret an
oral route of administration as any drug
that is intended to be taken by mouth.
In accordance with these provisions,
CMS is providing manufacturers with
guidance in order to assist them in
determining which drugs should be
considered as oral solid dosage forms
(please see Table 1). This list will be
updated based on any changes to the
FDA’s definition of solid dosage forms.
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TABLE 1—LIST OF ORAL SOLID DOSAGE FORMS
Bar, Chewable
Capsule (Immediate/Complete Release)
Chewable Or Perle)
Capsule, Coated (Hard Or Soft Gelatin)
Capsule, Coated, Extended Release
Capsule, Delayed Release Pellets
Capsule, Extended Release
Capsule, Film Coated, Extended Release
Capsule, Hard Gelatin
Capsule, Repeat Action
Capsule, Soft Gelatin Liquid-Filled
Dispersible Tablet
Granule, Delayed Release
Gum (Chewing, Medicated)
Lozenge
Tablet
(Hard
Or
Soft
Gelatin,
Capsule,
Capsule,
Capsule,
Capsule,
Capsule,
Capsule,
Capsule,
Capsule,
CMS would not consider the
following as oral solid dosage forms
because these dosage forms are intended
to be made into a liquid or suspension
prior to oral consumption.
TABLE 2—LIST OF OTHER DOSAGE
FORMS
Granule Effervescent
Granule, Effervescent, for Solution
Granule Effervescent,
for Suspension
Granule, for Oral Suspension
Granule, Effervescent, for Solution
Tablet, Effervescent
Tablet, for Solution
Tablet Effervescent
for Solution
Tablet, for Suspension
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15. Over-the-Counter (OTC) Drug
With the exception of certain tobacco
cessation drugs for pregnant women, or
an EPSDT service, section 1927(d)(2) of
the Act currently allows States to
exclude from coverage or otherwise
restrict coverage of OTC drugs. We
propose to add a definition of OTC
drugs in order to clarify which products
would be treated as OTC drugs in the
Medicaid program. This definition is
consistent with our current policy and
would not change how these drugs are
treated for purposes of coverage under
the Medicaid program. We propose to
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Coated Pellets
Delayed Action (Hard Or Gelatin, Coated, Enteric Coated)
Enteric Coated Pellets
Film Coated (Hard Gelatin)
Gelatin Coated
Liquid Filled
Soft Gelatin
Sustained Action (Hard Or Soft Gelatin, Coated, Film Coated)
Granule, Enteric Coated
Lollipop
Pellet, Coated, Extended Release
Tablet (Immediate/Complete Release) (Coated, Film Coated, Sugar
Coated, Multilayer, Uncoated, Buccal, Chewable)
Tablet, Coated
Tablet, Controlled Release
Tablet, Delayed Release
Tablet, Dispersible
Tablet, Extended Release
Tablet, Film Coated, Extended Release
Tablet, Multilayer, Extended Release
Tablet, Orally Disintegrating
Tablet, Soluble
Tablet, Sustained Action (Coated, Film Coated, Multilayer, Uncoated)
Tablet, Uncoated, Lozenge
Tablet, Uncoated, Troche
Pastille
Wafer
Tablet, Chewable
Tablet, Coated Particles
Tablet, Delayed Action (Coated, Enteric Coated)
Tablet, Delayed Release Particles
Tablet, Enteric Coated Particles
Tablet, Film Coated
Tablet, Multilayer (Coated, Film Coated)
Tablet, Orally Disintegrating, Delayed Release
Tablet, Repeat Action (Coated)
Tablet, Sugar Coated
Tablet, Sustained Release, Film Coated
Tablet, Uncoated, Lozenge, Lypophilized
Tablet, Sustained Action, Membrane Controlled
Troche/Lozenge
Capsule, for Microemulsion
Capsule
Capsule, Coated
define OTC drugs as drugs that are
appropriate for use without the
supervision of a health care professional
such as a physician, and which can be
purchased by a consumer without a
prescription, although for Medicaid
coverage a prescription continues to be
required. OTC drugs may be marketed
under an approved premarket
application (NDA or ANDA) or in many
cases, may be marketed under an OTC
monograph. In some instances, FDA
permits these drugs to be marketed
under a monograph that is not yet final
(such as where there is an OTC tentative
final monograph), as stated in 21 CFR
part 330 and FDA guidance. Unlike
NDAs which are based on premarket
approval of specific, finished drug
products, monographs specify the active
ingredients, indications, dosages, and
claims that can be made by the OTC
drug products.
16. Pediatric Indications
The Affordable Care Act established a
minimum rebate percentage of 17.1
percent of AMP for single source and
innovator multiple source drugs
approved by the FDA exclusively for
pediatric indications. To implement this
requirement, we propose to clarify
which drugs will be subject to this
minimum rebate percentage. In
regulations at 21 CFR 201.57 and 21
CFR 201.80, the FDA defines pediatric
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use for most drug labeling to mean use
for pediatric populations and pediatric
patients, that is, ‘‘the pediatric age
group, from birth to 16 years, including
age groups often called neo-nates,
infants, children, and adolescents.’’
Accordingly, given the statutory
amendments, we propose to define ‘‘a
drug approved by the Food and Drug
Administration exclusively for pediatric
indications’’ to mean a drug product
approved by the FDA exclusively with
indications for pediatric use, with the
pediatric age group defined from birth
to 16 years. Drugs that are not approved
and labeled exclusively for pediatric
use, that merely reference use in
children in any part of the labeling, or
that receive a supplemental indication
for pediatric use, will not qualify for the
minimum rebate of 17.1 percent of AMP
as specified in section 1927(c)(1)(B)(iii)
of the Act. In accordance with the
statute, we propose to apply this
definition only to drug products whose
FDA-approved labeling includes only
indications for children from birth to 16
years of age. Drugs without this explicit
age labeling will not satisfy the
requirement that the drug be approved
exclusively for pediatric use and will
not qualify for the minimum rebate of
17.1 percent of AMP. We are proposing
to apply such a definition only when
this specific pediatric age cohort
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appears in the ‘‘Indication and Usage’’
section of the FDA-approved labeling.
NDA, then the brand name drug should
be reported as an ‘‘S’’ to CMS.
17. Professional Dispensing Fee
19. States
The definition of dispensing fee will
remain unchanged as it already
enumerates those costs to dispense a
drug that the pharmacy incurs.
However, we propose to replace the
term ‘‘dispensing fee’’ with
‘‘professional dispensing fee’’ as drug
ingredient cost is only one component
of the two-part formula that States
generally use to reimburse pharmacies
for prescribed drugs dispensed to
Medicaid beneficiaries; and, we feel that
this change from ‘‘dispensing fee’’ to
‘‘professional dispensing fee’’ reinforces
our position that once the
reimbursement for the drug is properly
determined, the dispensing fee should
reflect the pharmacist’s professional
services and costs associated with
ensuring that possession of the
appropriate covered outpatient drug is
transferred to a Medicaid beneficiary.
Therefore, as States change their
payment for ingredient cost, we also
propose to require States to reconsider
the dispensing fee methodology
consistent with the revised
requirements.
Currently, for purposes of this
subpart, the term ‘‘States’’ is defined as
the 50 States and the District of
Columbia. However, excluding the
territories from this definition of States
prevents them from receiving
manufacturer rebates through the MDR
program. We recognize that the
territories have, over the years,
expressed an interest in participating in
the MDR program and that such rebates
would in part offset the costs of
providing Medicaid drugs. We have
decided, in accordance with section
1101(a)(1) of the Act, to propose
revising the definition of States to
include the 50 States, the District of
Columbia, and the territories (the
Commonwealth of Puerto Rico, the
Virgin Islands, Guam, the Northern
Mariana Islands and American Samoa).
Therefore, for drug rebates, we believe
it is in the best interests of the Medicaid
program to include the territories in the
definition of States so that they may
achieve the savings that drug rebates
provide and we propose that the
definition of States should be revised
accordingly. We also acknowledge that
there may be concerns with the
territories participating in the MDR
program; therefore, we request
comments regarding the inclusion of the
territories in the definition of States.
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18. Single Source Drug
As currently defined in § 447.502, a
single source drug means a covered
outpatient drug that is produced or
distributed under an NDA approved by
the FDA, including a drug product
marketed by any cross-licensed
producers or distributors operating
under the NDA. It also includes a
covered outpatient drug approved under
a BLA, PLA, ELA, or ADA.
As previously stated in the discussion
of the proposed changes to the
definition of innovator multiple source
drug, for purposes of the MDR program,
we have defined an original NDA as an
NDA filed by the manufacturer with the
FDA for purposes of approval for safety
and effectiveness. Further, we wish to
remind a manufacturer that as long as it
has an approved NDA number issued by
the FDA, a drug is considered to be a
single source drug and is required to be
reported with as an ‘‘S’’ drug category
to CMS under the MDR program unless
there are FDA approved therapeutic
equivalents. To determine if therapeutic
equivalents are available, you can access
the FDA’s Drugs@FDA and search by the
Application Number. If therapeutic
equivalents are available for the NDA,
then you will see the link to
‘‘Therapeutic Equivalents’’ in the
‘‘Drugs Details’’ page. If there are no
therapeutic equivalents available for the
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20. United States
Similar to our review of the term
‘‘States’’, we also examined our use of
the term ‘‘United States’’. As with the
term ‘‘States,’’ we defined United States
only to mean the 50 States and the
District of Columbia. However, section
1101(a)(2) of the Act provides that when
used in a geographic sense, the term
‘‘United States’’ means, except where
otherwise provided, the States. In
accordance with this definition, we
think it is reasonable to conclude that in
this context, the term is used in the
geographical sense in that it
contemplates the sales of drugs in any
of the States. (Please see section II.K.
Upper limits for multiple source drugs
(§ 447.514) of the preamble for further
discussion on the sale of drugs on a
nationwide basis.) Therefore, for the
purposes of this subpart, we propose, in
accordance with section 1101(a) of the
Act, to define the ‘‘United States’’ to
mean the 50 States plus the District of
Columbia and the territories as
described above.
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21. Wholesaler
The Affordable Care Act added a
definition of the term ‘‘wholesaler’’ at
section 1927(k)(11) of the Act. We
propose to adopt that definition and
define wholesaler to mean a drug
wholesaler that is engaged in wholesale
distribution of prescription drugs to
retail community pharmacies, including
(but not limited to) manufacturers,
repackers, distributors, own-label
distributors, private-label distributors,
jobbers, brokers, warehouses (including
manufacturer’s and distributor’s
warehouses, chain drug warehouses,
and wholesale drug warehouses),
independent wholesale drug traders,
and retail community pharmacies that
conduct wholesale distributions.
We are not proposing that a
wholesaler be licensed by the State
inasmuch as that is not a requirement of
the Act, in comparison to the definition
of retail community pharmacy, where
State licensing is required. In
considering how to clarify this term, we
reviewed the definition of ‘‘wholesale
distributor,’’ that appears in section
510(g) of the FFDCA, and regulations at
21 CFR 807.3(s), which provide that the
term ‘‘wholesale distributor’’ means
‘‘any person (other than the
manufacturer or the initial importer)
who distributes a device from the
original place of manufacture to the
person who makes the final delivery or
sale of the device to the ultimate
consumer or user.’’ While this definition
is helpful, it does not provide additional
clarity to the definition in the Act.
Therefore, we are proposing to define
wholesaler as set forth in the Act, but
are specifically seeking comment on
further data sources or definitions we
could apply here that would help to
further clarify the term wholesaler.
C. Determination of Average
Manufacturer Price (§ 447.504)
1. AMP Historical Background
The Omnibus Budget Reconciliation
Act of 1990 (OBRA ’90) (Pub. L. 101–
508) added section 1927 to the Act,
which became effective on January 1,
1991. OBRA ’90 established the MDR
program and defined the AMP with
respect to a covered outpatient drug of
a manufacturer for a rebate period as the
average unit price paid to the
manufacturer for the drug in the United
States by wholesalers for drugs
distributed to the retail pharmacy class
of trade. Manufacturers who entered
into and had in effect a rebate agreement
with CMS were required to report AMP
on a quarterly basis. The AMP was used
to calculate the rebates paid by
manufacturers to the States for drugs
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dispensed to their Medicaid
beneficiaries.
The Deficit Reduction Act of 2005
(DRA) made significant changes to the
Medicaid prescription drug provisions
of the Act. The DRA amended section
1927(k)(1) of the Act to revise the
definition of AMP to exclude customary
prompt pay discounts to wholesalers,
effective January 1, 2007. The DRA
defined AMP, in part, to mean, with
respect to a covered outpatient drug of
a manufacturer for a calendar quarter,
the average price paid to the
manufacturer for the drug in the United
States by wholesalers for drugs
distributed to the retail pharmacy class
of trade.
Section 6001(c)(3) of the DRA
required the Office of Inspector General
(OIG) to review the requirements for and
manner in which AMP was to be
determined and recommend changes to
the Secretary by June 1, 2006. Section
6001(c)(3) of the DRA also required the
Secretary to clarify the requirements for
and the manner in which AMPs are
determined by promulgating a
regulation no later than July 1, 2007,
taking into consideration the OIG’s
recommendation.
In May 2006, the OIG issued a report,
‘‘Determining Average Manufacturer
Prices for Prescription Drugs under the
Deficit Reduction Act of 2005’’. In this
report the OIG recommended that CMS:
• Clarify the requirements in regards
to the definition of retail pharmacy class
of trade and treatment of pharmacy
benefit manager (PBM) rebates and
Medicaid sales; and
• Consider addressing issues raised
by industry groups, such as:
+ Administrative and service fees,
+ Lagged price concessions for
returned goods,
+ The frequency of AMP reporting,
+ AMP restatements, and
+ Base date AMP.
The OIG also recommended that the
Secretary direct CMS to:
• Issue guidance in the near future
that specifically addresses the
implementation of the AMP-related
reimbursement provisions of the DRA;
and
• Encourage States to analyze the
relationship between AMP and
pharmacy acquisition cost to ensure that
the Medicaid Program appropriately
reimburses pharmacies for estimated
acquisition costs.
At that time, we recognized that there
had been concerns expressed by the OIG
and GAO in several prior reports
regarding AMP because of
inconsistencies in the way
manufacturers determine AMP, changes
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in the marketplace, and the introduction
of newer business practices such as
payment of services fees. We also
realized that, in light of the DRA
amendments, AMP would serve two
distinct purposes: determining rebates,
and serving as the basis for establishing
the FUL for multiple source drugs. As
a result of a preliminary injunction that
had been entered in a lawsuit
challenging the definition of AMP, CMS
had never used the AMP final rule as a
basis for calculating FULs.
Following the enactment of the
Affordable Care Act, in the November
15, 2010 Federal Register (75 FR
69591), ‘‘Withdrawal of Determination
of Average Manufacturer Price, Multiple
Source Drug Definition, and Upper
Limits for Multiple Source Drugs’’, we
withdrew § 447.504 ‘‘Determination of
AMP’’ from the AMP final rule
following a period of notice and
comment on the proposed withdrawal.
2. AMP Under the Affordable Care Act
On March 23, 2010, the Affordable
Care Act was enacted. As noted above,
section 2503 of the Affordable Care Act
revised the definition of AMP. The
Affordable Care Act was further
amended by section 202 of the
Education Jobs and Medicaid Funding
Act (Pub. L. 111–226), which was
enacted on August 10, 2010.
For the determination of AMP, the
Affordable Care Act revises the
definition in section 1927(k) of the Act
to eliminate the term ‘‘retail pharmacy
class of trade’’ and adds a definition of
the term ‘‘retail community pharmacy’’,
as well as wholesaler. It identifies
specific entities drug manufacturers are
to include and exclude from the
determination of AMP and (as amended
by Pub. L. 111–226) clarifies exceptions
to the excluded entities for inhalation,
infusion, instilled, implanted, or
injectable drugs that are not generally
dispensed through a retail community
pharmacy.
In this proposed rule, we propose a
new § 447.504 ‘‘Determination of AMP,’’
which would be based on section
1927(k)(1) of the Act as amended by the
Affordable Care Act. Below we provide
a detailed discussion of the proposed
definition of retail community
pharmacy, other terms used in the
determination of AMP, the entities
proposed for inclusion and exclusion
from AMP, and our proposed policy
regarding the treatment of inhalation,
infusion, instilled, implanted, or
injectable drugs (also referred to as 5i
drugs, defined in proposed § 447.507),
that are not generally dispensed through
a retail community pharmacy in the
determination of AMP.
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These provisions of the Affordable
Care Act became effective on October 1,
2010 without regard to whether final
regulations to carry out the provisions
have been promulgated. Section
2503(a)(2) of the Affordable Care Act
revised the definition of AMP to mean,
for a covered outpatient drug of a
manufacturer for a rebate period, the
average price paid to the manufacturer
for the drug in the United States by
wholesalers for drugs distributed to
retail community pharmacies, and by
retail community pharmacies that
purchase drugs directly from the
manufacturer.
In accordance with section
1927(k)(1)(B)(i) of the Act, as amended
by section 2503(a)(2)(B) of the
Affordable Care Act, drug manufacturers
are to exclude the following from the
determination of the AMP:
• Customary prompt pay discounts
extended to wholesalers;
• Bona fide service fees paid by
manufacturers to wholesalers or retail
community pharmacies, including (but
not limited to) distribution service fees,
inventory management fees, product
stocking allowances, and fees associated
with administrative services agreements
and patient care programs (such as
medication compliance programs and
patient education programs);
• Reimbursement by manufacturers
for recalled, damaged, expired, or
otherwise unsalable returned goods,
including (but not limited to)
reimbursement for the cost of goods and
any reimbursement of costs associated
with return goods handling and
processing, reverse logistics, and drug
destruction;
• Payments received from, and
rebates or discounts provided to, PBMs,
managed care organizations, health
maintenance organizations, insurers,
hospitals, clinics, mail order
pharmacies, long term care providers,
manufacturers, or any other entity that
does not conduct business as a
wholesaler or retail community
pharmacy, unless the drug is an
inhalation, infusion, instilled,
implanted, or injectable drug that is not
generally dispensed through a retail
community pharmacy.
• Discounts provided by
manufacturers under the Medicare
Coverage Gap Discount Program (section
1860D–14A of the Act).
Section 1927(k)(1)(B)(ii) of the Act
specifies that, notwithstanding section
1927(k)(1)(B)(i) of the Act,
manufacturers are to include in the
determination of AMP for a covered
outpatient drug any other discounts,
rebates, payments, or other financial
transactions that are received by, paid
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by, or passed through to retail
community pharmacies.
How AMP is defined and what sales
are included in the determination of
AMP affects manufacturers, pharmacy
groups, the Federal and State
governments and Medicaid
beneficiaries, and often there are
competing interests at play. The
provisions of the Affordable Care Act
regarding AMP serve two distinct
purposes: Determining rebates and
determining the basis for the FUL for
multiple source drugs.
There is a direct relationship between
which entities are to be included and
excluded from AMP calculations and
the basis for determining the FUL for
multiple source drugs. The Affordable
Care Act defines AMP to include prices
paid to manufacturers by wholesalers
for drugs distributed to retail
community pharmacies and by retail
community pharmacies that purchase
drugs directly from the manufacturer.
These sales are typically at higher prices
than those of the specifically excluded
entities such as the pharmacy benefit
managers, managed care organizations,
health maintenance organizations,
insurers, hospitals, clinics, mail order
pharmacies, long term care providers,
and manufacturers. AMP calculations
based on those sales to retail community
pharmacies, as opposed to other
pharmacies (such as mail order
pharmacies), would likely result in a
higher AMP value, given that AMP
would be limited to higher priced sales.
This higher AMP value would benefit
the retail pharmacy industry because it
is likely that the FUL, based on those
AMPs, would be higher and in turn the
maximum pharmacy reimbursement,
based on those FULs, would be higher.
On the other hand, a higher AMP
would, in all likelihood, result in higher
rebate payments from manufacturers. A
broader definition of AMP, which
would include sales to entities that
purchase drugs at lower prices, would
likely lower the AMP value, which in
turn would lower drug manufacturer
rebate liabilities.
AMP values also have an impact on
States and potentially beneficiaries.
Increasing AMP values and associated
rebate payments would have a direct
impact on State expenditures. However,
increasing the FULs would also have a
direct impact on State payments. On the
other hand, if pharmacy reimbursement
rates are too low, then it is conceivable
that some pharmacies may elect not to
participate in the Medicaid program,
which could impact beneficiary access
to pharmacy services. Similarly, States
and the Federal government have an
interest in assuring an appropriate level
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of rebates and beneficiaries’ access to
care.
3. Definitions
Following is a detailed discussion of
the specific terms associated with AMP
calculations that we propose to define at
§ 447.504(a).
a. Average Unit Price
We propose to define average unit
price to mean a manufacturer’s quarterly
sales included in AMP less all required
adjustments divided by the total units
sold and included in AMP by the
manufacturer in a quarter. The quarterly
sales figure used in this definition
represent sales of the drug unit in the
lowest identifiable amount (for example,
tablet or capsule for solid dosage forms,
milliliter for liquid forms, gram for
ointments or creams) as reported by the
manufacturer.
b. Charitable and Not-for-Profit
Pharmacies
For the purposes of this subpart, we
propose to define charitable and not-forprofit pharmacies as organizations
described in section 501(c)(3) of the
Internal Revenue Code of 1986.
c. Insurers
The DRA amended section
1902(a)(25) of the Act by modifying the
definition of ‘‘third parties’’ and ‘‘health
insurers’’ to clarify the inclusion of selfinsured plans, managed care
organizations, PBMs, or other parties
that are by statute, contract, or
agreement, legally responsible for
payment of a claim for a health care
item or service. Although, the DRA
clarified ‘‘third parties’’, the Affordable
Care Act referenced the term ‘‘insurer’’
in section 1927(k)(1)(B)(IV) of the Act
and provided that payments received
from many of these third party
organizations (for example, pharmacy
benefit managers, managed care
organizations, health maintenance
organizations, insurers) be excluded
from the AMP calculation.
For the purposes of this subpart, we
propose to define insurers as entities
that are responsible for the payment of
drugs but do not directly purchase drugs
from manufacturers and are not in the
supply chain to receive delivery of these
drugs. Instead, insurers are responsible
for payment to pharmacies for drugs
dispensed to their members, and do not
take actual possession of these drugs.
d. Net Sales
We propose to define net sales to
mean quarterly gross sales revenue to
wholesalers for drugs distributed to
retail community pharmacies and retail
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community pharmacies that purchase
drugs directly from manufacturers less
cash discounts allowed, and other price
reductions (other than rebates under
section 1927 of the Act or price
reductions specifically excluded by
section 1927 of the Act, or regulations
under this subpart) which reduce the
amount received by the manufacturer.
e. Retail Community Pharmacy
The Affordable Care Act eliminated
the term ‘‘retail pharmacy class of
trade’’ from the definition of AMP, and
added section 1927(k)(10) of the Act to
include a definition of the term ‘‘retail
community pharmacy.’’ This change
significantly narrows the entities
previously included in the definition of
retail pharmacy class of trade. In
accordance with the Act, we propose to
define retail community pharmacy to
mean an independent pharmacy, a
chain pharmacy, a supermarket
pharmacy, or a mass merchandiser
pharmacy that is licensed as a pharmacy
by the State and that dispenses
medications to the general public at
retail prices. We further propose to
incorporate the requirement set forth in
section 1927(k)(10) of the Act that such
term does not include a pharmacy that
dispenses prescription medications to
patients primarily through the mail,
nursing home pharmacies, long-term
care facility pharmacies, hospital
pharmacies, clinics, charitable or notfor-profit pharmacies, government
pharmacies, or pharmacy benefit
managers.
Section 1927(k)(1) of the Act as
amended by the Affordable Care Act
specifies that manufacturers are
responsible for reporting the AMP based
upon their sales to retail community
pharmacies or wholesalers for drugs
dispensed to retail community
pharmacies.
In addition, the statutory provision for
the determination of AMP suggests there
are entities (for example, specialty
pharmacies, home infusion pharmacies,
and home health care providers), which
are conducting business as wholesalers
or retail community pharmacies which
could be included in the determination
of AMP. Section 1927(k)(1)(B)(i)(IV) of
the Act excludes from the determination
of AMP ‘‘payments received from and
rebates or discounts provided to * * *
any other entity that does not conduct
business as a wholesaler or a retail
community pharmacy * * *’’. We
believe that to give the provision some
meaning, the statute contemplates the
inclusion of payments and discounts
from those entities that actually conduct
business as a wholesaler or retail
community pharmacy. This
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interpretation gives meaning to this
broad exclusion, and provides for a
calculation of AMP consistent with our
reading of the statute. If an entity that
does not conduct business as a
wholesaler or retail community
pharmacy is to be excluded from the
determination of AMP, we considered
whether or not it would be reasonable
to conclude that payments received
from and rebates or discounts provided
to an entity that conducts business as a
wholesaler or retail community
pharmacy should be included in the
determination of AMP. Based upon our
understanding of the program, certain
covered outpatient drugs may only be
dispensed through such entities that are
conducting business as wholesalers or
retail community pharmacies, such as
certain oral covered outpatient drugs
approved by the FDA requiring a Risk
Evaluation and Mitigation Strategy
(REMS), to ensure that the benefits of a
drug or biological product outweigh its
risks. A list of REMS drugs is publically
accessible on the FDA Web site at
https://www.fda.gov/Drugs/DrugSafety/
PostmarketDrugSafetyInformationfor
PatientsandProviders/ucm111350.htm.
Some REMS drugs are required to be
dispensed by specially certified
pharmacies, resulting in certain
manufacturers utilizing a restricted
network of certified specialty and home
infusion pharmacies, which are not
specifically included in the definition of
retail community pharmacy at section
1927(k)(10) of the Act. In addition,
certain oral covered outpatient drugs are
dispensed solely through these specialty
and home infusion pharmacies.
Therefore, if these entities were to be
excluded from AMP calculations, an
AMP would not be available for these
oral covered outpatient drugs. As a
result, manufacturers would not be able
to calculate rebates for these products
and the statutory provisions requiring
rebates for such drugs would, in
essence, be rendered meaningless. We
do not believe that the law should be
read to create such a result. Section
1927(b)(1) of the Act requires that
manufacturers must provide rebates for
all of their covered outpatient drugs for
which payment was made under the
State plan. These provisions were not
amended by the Affordable Care Act.
Therefore, we believe in light of the
provisions of section 1927(k)(1)(B)(i) of
the Act, there is a basis for allowing
sales, rebates, and discounts provided to
entities conducting business as
wholesalers or retail community
pharmacies to be included in the
determination of AMP for those drugs
for which an AMP could not otherwise
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be calculated. Such an interpretation
continues to give meaning to the rebate
responsibilities of manufacturers in
section 1927(b) of the Act. Therefore, we
propose to include in the determination
of AMP payments received from and
rebates or discounts provided to an
entity that conducts business as a
wholesaler or retail community
pharmacy, such as specialty and home
infusion pharmacies, and home
healthcare providers, since these
entities dispense medications to
segments of the general public at retail
prices. We specifically invite comments
on this part of the proposed rule.
Manufacturers contend that there is
an administrative burden and difficulty
in obtaining records assuring that their
sales to wholesalers are distributed to
retail community pharmacies. We took
their concerns into consideration and
considered whether or not to propose
that the sales which cannot be definitely
identified as sales to retail community
pharmacies or wholesalers for drugs
dispensed to retail community
pharmacies would be eligible for
inclusion in the sales that
manufacturers use for AMP
calculations. We received comments
during the comment period for the
Proposed Rule ‘‘Withdrawal of
Determination of Average Manufacturer
Price, Multiple Source Drug Definition,
and Upper Limits for Multiple Source
Drugs’’ published in the Federal
Register on September 3, 2010 (75 FR
54073) that raised issues regarding the
implementation of the new definition of
AMP. As these comments were outside
the scope of that proposed rule, these
comments were not specifically
addressed as part of final rule published
on November 15, 2010 (75 FR 69591).
However, these comments do provide
insight into issues of concern for the
various stakeholders, especially in
regards to the implementation of the
new proposed definition of AMP.
One of the issues raised was whether
manufacturers should be allowed to
presume that sales of drugs are
distributed to retail community
pharmacies when those sales of drugs
are to wholesalers that do not further
differentiate their sales among end
purchasers.
Based on information provided from
these comments it is our understanding
that wholesalers generally resell either
to manufacturer-contracted customers
(which would generate a chargeback or
similar record), or to other purchasers
with no contract discount arrangement
with the manufacturer. In the case of
sales to wholesalers where no
chargeback record is generated,
manufacturers contend that they have
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minimal to no verifiable information
regarding the final transactions on this
category of wholesaler re-sales.
Manufacturers have expressed concern
that they would not have adequate data
regarding the wholesaler’s actual
purchaser to accurately determine if the
drug was ultimately sold to retail
community pharmacies. Therefore, we
considered proposing a so-called
‘‘presumed inclusion’’ policy, where the
manufacturer could (absent
documentation to the contrary) presume
that sales to wholesalers are for drugs
distributed to retail community
pharmacies, without data concerning
that actual distribution. Based upon the
comments we received from
manufacturers we believe such a policy
would be consistent with the market
based on the typical chargeback
arrangements that manufacturers have
in place for institutional and other nonretail community pharmacy purchasers.
The presumed inclusion policy would
not require manufacturers to obtain data
regarding the actual distribution to retail
community pharmacies. Through the
presumed inclusion policy, in the
absence of chargeback or other verifiable
data, manufacturers would be able to
presume that the sales of drugs to
wholesalers are for drugs that are
distributed to retail community
pharmacies.
However, we recognize that there
could be concerns with respect to
whether manufacturers should be
permitted to presume, in the absence of
adequate documentation to the contrary,
that prices paid by wholesalers are for
drugs that are actually distributed to
retail community pharmacies. Allowing
this practice of presumptive inclusion
could affect the calculation of the FULs
for multiple source drugs because it
arguably would permit the inclusion of
lower AMPs in that calculation based on
sales that may not have been actually
distributed to retail community
pharmacies. It could be argued that if
manufacturers are allowed to presume
that all drug sales are distributed to
retail community pharmacies, AMP
would be lower because it could include
sales to entities (for example, mail order
pharmacies and hospitals) that are able
to buy the drugs at lower prices than
retail community pharmacies. On the
other hand, it could also be argued that,
despite these concerns, there would be
no adverse consequences to the FULs if
manufacturers could presume sales
distribution to retail community
pharmacies because the sales that would
be captured using the presumptive
inclusion policy are those sales that do
not generate chargebacks. In comments
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we received during the comment period
for the Proposed Rule, ‘‘Withdrawal of
Determination of Average Manufacturer
Price, Multiple Source Drug Definition,
and Upper Limits for Multiple Source
Drugs’’ published in the Federal
Register on September 3, 2010 (75 FR
54073), manufacturers claim that
allowing the presumed inclusion policy
would not create any adverse
consequences concerning pharmacy
payments. They believe that these sales
would, in all likelihood, have a higher
net price than institutional or
chargeback-generating sales.
Additionally, they contend that the
volume of AMP-eligible sales used in
calculating the FUL could be increased
because the additional sales to
wholesalers without chargeback data
would be added to the volume
calculation for determining the
weighted average of monthly AMPs.
Therefore, they argue that calculating
AMPs utilizing the presumptive
inclusion policy could result in higher
AMPs than AMPs based on actual data
and those higher AMPs would be
weighted more heavily in the FULs
calculation.
We also considered instances where
manufacturers are only including in
their calculation of AMP those sales
where there is adequate verifiable
documentation showing that the drug
was actually distributed to a retail
community pharmacy, whether directly
or through a wholesaler. However, we
recognize that in this approach there
may be instances where the wholesaler
actually re-sells the drug to the retail
community pharmacies but the
manufacturer does not have
documentation regarding that actual
sale to the retail community pharmacy.
Therefore, in contravention of the
statute, those sales would not be
included in the AMP calculation since
the manufacturer does not have
adequate documentation.
While we recognize such concerns,
we have decided to propose that
manufacturers report the AMP based
upon their actual sales to retail
community pharmacies or wholesalers
for drugs distributed to retail
community pharmacies. Although we
are not proposing a presumed inclusion
policy, we did consider both approaches
and recognize that there are obstacles
with each. We acknowledge that a
reasonable alternate approach would be
one of presumed inclusion because the
statute provides a more structured
definition of what is to be included and
excluded from AMP. However, we have
concerns that a presumed inclusion
policy would lead to the inclusion of
sales by a manufacturer to entities not
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contemplated in the statutory definition.
Accordingly, for purposes of this
proposed rule, we are proposing that
manufacturers must calculate AMP
based on sales: (1) To wholesalers for
drugs distributed to retail community
pharmacies, or (2) to retail community
pharmacies. We seek comments
regarding this section and request
information concerning distribution
data, specifically data concerning
wholesaler sales to the retail community
pharmacies so that we can further
consider this policy decision.
knows that such transactions occur.
However, in accordance with our
reading of the statute, the manufacturer
must include such discounts where it
has evidence or documentation
demonstrating that such discounts have
been passed through to the pharmacy.
4. Sales Included in the Determination
of AMP
Following is a discussion of specific
sales, discounts, rebates, payments,
nominal price sales, and other financial
transactions that we propose to include
in the determination of AMP at
§ 447.504(b).
As discussed earlier, we believe in
light of the provisions of section
1927(k)(1)(B)(i) of the Act, there is a
basis for allowing sales, rebates, and
discounts provided to entities
conducting business as wholesalers or
retail community pharmacies to be
included in the determination of AMP
for those drugs for which an AMP could
not otherwise be calculated. It is our
understanding that certain covered
outpatient drugs are dispensed
primarily, if not solely, through such
entities as specialty pharmacies, home
infusion pharmacies, or home
healthcare providers. We propose that
these pharmacies be considered entities
that are conducting business as
wholesalers or retail community
pharmacies. While not specifically
identified in the statutory definition of
retail community pharmacy, these
pharmacies do conduct business as a
retail community pharmacy inasmuch
as they dispense medications to the
general public at retail prices and are
licensed by the State as a pharmacy.
While they may be serving a specific
part of the general public based on a
certain medical condition, the drugs
dispensed by these pharmacies are sold
in the retail marketplace and are
available to any member of the general
public who has one of these medical
conditions. Therefore, we propose that
manufacturers are to include in the
determination of AMP the sales of
covered outpatient drugs that are
dispensed through entities conducting
business as wholesalers or retail
community pharmacies, which include
but are not limited to specialty
pharmacies, home infusion pharmacies,
and home healthcare providers.
a. Sales to Wholesalers (§ 447.504(b)(1))
The definition of AMP in section
1927(k)(1) of the Act, as amended by the
Affordable Care Act, specifies that AMP
is to be calculated, in part, based on the
prices paid by wholesalers for drugs
dispensed through retail community
pharmacies. Therefore, we propose that
sales to wholesalers for drugs
distributed to retail community
pharmacies are to be included in the
determination of AMP.
b. Sales to Other Manufacturers
(§ 447.504(b)(2))
We propose that sales to other
manufacturers who act as wholesalers
are to be included in the determination
of AMP to the extent that such sales are
for drugs distributed to retail
community pharmacies. This provision
should be read in concert with the
definition of wholesaler found in
section 1927(k)(11) of the Act.
c. Retail Community Pharmacies
(§ 447.504(b)(3))
Section 1927(k)(1)(B)(ii) of the Act, as
revised by the Affordable Care Act
specifies that manufacturers are to
include in the determination of AMP,
discounts, rebates, payments or other
financial transactions that are received
by, paid by, or passed through to, retail
community pharmacies, as defined
earlier in this section. Therefore, we
propose to include in the determination
of AMP, notwithstanding those price
reductions specifically excluded by
statute or this regulation, discounts,
rebates, payments, or other financial
transactions that are received by, paid
by, or passed through to, retail
community pharmacies. Again, we are
unsure to what extent the manufacturer
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d. Entities Conducting Business as
Retail Community Pharmacies or
Wholesalers, Including But Not Limited
to Specialty Pharmacies, Home Infusion
Pharmacies and Home Healthcare
Providers (§ 447.504(b)(4))
5. Sales Excluded From the
Determination of AMP
Following is a discussion of specific
sales, discounts, rebates, payments and
other payments that we propose to
exclude from the determination of AMP
at § 447.504(c).
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a. Prices to Other Federal Programs
Including TRICARE—(§ 447.504(c)(1)–
§ 447.504(c)(3))
Manufacturers that participate in the
MDR program can also participate in
other Federal programs which set the
prices and/or discounts for drugs, and
these prices are not generally available
to retail community pharmacies. We
propose that in light of section 1927(k)
of the Act, prices to Federal programs
should be excluded from AMP. These
Federal programs include the Indian
Health Service (IHS), the DVA, a State
home receiving funds under section
1741 of title 38, United States Code, the
Department of Defense (DoD), the Public
Health Service (PHS), a covered entity
described in section 1927(a)(5)(B) of the
Act (including inpatient prices charged
to hospitals described in section 340B
(a)(4)(L) of the PHSA), the Federal
Supply Schedule (FSS) of the General
Services Administration (GSA); or any
depot prices (including TRICARE) and
single award contract prices, of any
agency of the Federal government.
On March 17, 2009, the Department of
Defense (DoD) issued a regulation
entitled, Civilian Health and Medical
Program of the Uniformed Services
(CHAMPUS)/TRICARE: Inclusion of
TRICARE Retail Pharmacy Program in
Federal Procurement of Pharmaceuticals
(74 FR 11279). That regulation
implements section 703 of the National
Defense Authorization Act for fiscal
year 2008 (NDAA, Pub. L. 110–181)
which states that for any prescription
filled on or after the date of enactment
of the NDAA, the TRICARE Retail
Pharmacy Program will be treated as an
element of the DoD for purposes of
procurement of drugs by Federal
agencies under section 8126 of title 38,
United States Code (U.S.C.). In
accordance with that provision as well
as the revised definition of AMP in
section 1927(k)(1) of the Act, we
propose that TRICARE Retail Pharmacy
Program prices should be treated as
prices to DoD and therefore excluded
from the calculation of AMP.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
b. Sales Outside the 50 States, the
District of Columbia and Territories
(§ 447.504(c)(4))
The proposed definition of ‘‘United
States’’ in § 447.502 would define
‘‘United States’’ to mean the 50 States,
the District of Columbia and the
territories. We, therefore, propose that
sales to entities outside the 50 States,
the District of Columbia and the
territories are not within the scope of
the definition of sales to retail
community pharmacy, and that drugs
sold to these entities would not be
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considered eligible sales within the
definition of AMP. Therefore, we
propose that sales to entities not within
the 50 States, the District of Columbia
or the territories be excluded from the
manufacturers’ determination of AMP.
c. Hospitals and Hospital Pharmacy
Sales (§ 447.504(c)(5))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that sales to hospitals are excluded from
the determination of AMP. Further, the
term ‘‘retail community pharmacy’’
excludes hospital pharmacies.
Therefore, we propose to clarify that
sales to hospitals, including direct and
indirect sales where the drug is used in
either the inpatient setting or the
outpatient pharmacy for outpatient
hospital use are excluded from the
determination of AMP.
d. Sales to Health Maintenance
Organizations (HMOs) (Including
Managed Care Organizations (MCOs))
(§ 447.504(c)(6))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that sales to HMOs and MCOs are
excluded from the determination of
AMP. The Affordable Care Act does not
specifically address HMO/MCO
operated pharmacies. However, given
the broad reference in the statute to
HMOs and MCOs, we propose to clarify
that sales and associated rebates and
discounts to HMO/MCO operated
pharmacies are excluded from the
determination of AMP.
e. Long-Term Care Facility Pharmacies
(§ 447.504(c)(7))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that sales and associated rebates and
discounts to long-term care providers
are excluded from the determination of
AMP. Further, the term retail
community pharmacy excludes nursing
home pharmacies and long-term care
facility pharmacies. Therefore, we
propose to clarify that sales and
associated rebates and discounts to
long-term care providers, including
nursing facility pharmacies, nursing
home pharmacies, long-term care
facilities, long-term care facilities
pharmacies, contract pharmacies for the
nursing facility where these sales can be
identified, and other entities where the
drugs are dispensed through a nursing
facility pharmacy, such as assisted
living facilities, be excluded from the
determination of AMP.
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5331
f. Mail Order Pharmacies
(§ 447.504(c)(8))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that the term retail community
pharmacy excludes pharmacies that
dispense prescription medications to
patients primarily through the mail. We
consider these to be mail order
pharmacies and as such we propose to
clarify that sales to mail order
pharmacies are excluded from the
determination of AMP.
g. Clinics and Other Outpatient
Facilities (§ 447.504(c)(9))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that sales to clinics are excluded from
the determination of AMP. In 42 CFR
440.90, clinic services is defined as
preventative, diagnostic, therapeutic,
rehabilitative, or palliative services that
are furnished by a facility that is not
part of a hospital but is organized and
operated to provide medical care to
outpatients. The term includes the
following services furnished to
outpatients: (a) Services furnished at the
clinic by or under the direction of a
physician or dentist, and (b) Services
furnished outside the clinic by clinic
personnel under the direction of a
physician to an eligible individual who
does not reside in a permanent dwelling
or does not have a fixed home or
mailing address.
Although the Affordable Care Act did
not specifically address the treatment of
outpatient facilities in the determination
of AMP, we believe that in accordance
with the definition of AMP in section
1927(k)(1) of the Act, as well as the
definition of clinic in 42 CFR 440.90,
sales to outpatient facilities such as
surgical centers, ambulatory care
centers, dialysis centers, End-Stage
Renal Disease clinics, outpatient
hospital clinics and mental health
centers should be excluded from the
AMP. Therefore, we propose to exclude
sales and associated rebates and
discounts to clinics and outpatient
facilities from the determination of
AMP.
h. Government Pharmacies
(§ 447.504(c)(10))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that the definition of retail community
pharmacy does not include government
pharmacies. We propose to define
government pharmacies as pharmacies
operated or owned by Federal, state,
county, and municipal governments. We
also propose that sales to government
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pharmacies are excluded from the
determination of AMP.
i. Sales to Charitable and Not-for-Profit
Pharmacies (§ 447.504(c)(11)–
§ 447.504(c)(12))
Section 1927(k) of the Act, as revised
by the Affordable Care Act specifies that
the definition of retail community
pharmacy does not include charitable or
not-for-profit pharmacies. We propose
to define charitable or not-for-profit
pharmacies as section 501(c)
organizations. Section 501(c)
organizations are those described in the
Internal Revenue Code and are taxexempt, nonprofit corporations or
associations. We propose that sales to
these not-for-profit and charitable
pharmacies be excluded from the
determination of AMP.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
j. Insurers § 447.504(c)(13))
The Affordable Care Act defined AMP
by specifying that payments received
from, and rebates or discounts provided
to insurers are to be excluded from the
determination of AMP. Therefore, we
propose to exclude from the
determination of AMP payments
received from, and any rebates,
discounts, or payments that are
provided directly to insurers and that
are not passed on to retail community
pharmacies.
However, we note that drugs sold to
wholesalers for distribution to retail
community pharmacies or drugs sold
directly to retail community pharmacies
that are subsequently reimbursed by
insurers when sold by the pharmacy to
beneficiaries are part of the chain of
sales from manufacturers to wholesalers
or retail community pharmacies. In
accordance with our reading of the
statute, the sales to wholesalers for
drugs distributed to retail community
pharmacies and retail community
pharmacies would be included in AMP
calculations, regardless of how the drug
is ultimately reimbursed when provided
to the beneficiary.
k. Administrative Fees, Including Bona
Fide Service Fees, as Well as the
Treatment of Group Purchasing
Organizations (GPOs) (§ 447.504(c)(14))
As described earlier, we propose to
revise the definition of bona fide service
fees in § 447.502 to include fees
provided as specific examples of bona
fide service fees in the Affordable Care
Act. The Affordable Care Act specifies
that bona fide service fees paid by
manufacturers to wholesalers or retail
community pharmacies include, but are
not limited to, distribution service fees,
inventory management fees, product
stocking allowances, and fees associated
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with administrative service agreements
and patient care programs (such as
medication compliance programs and
patient education programs).
The current regulations define bona
fide service fees, in part, to mean fees
paid by a manufacturer to an entity that
represent fair market value for a bona
fide, itemized service. We continue to
be concerned that these fees could be
used as a vehicle to provide discounts,
as opposed to fees at ‘‘fair market value’’
for bona fide services. Thus, to avoid
potential fraud concerns, we are
retaining our definition, but we have
chosen not to define ‘‘fair market value’’
at this time. Due to the rapidly changing
market in which new types of
arrangements arise, we believe that
manufacturers should appropriately
determine fair market value and make
reasonable assumptions consistent with
adequate documentation that will
support their payment for these services
at fair market rates sufficient that an
outside party can determine the basis
for the fair market value determination.
This is consistent with the 2007 AMP
Final Rule (72 FR 39184) and the ASP
reporting rule (71 FR 69667).
In accordance with the statute, we
propose that bona fide service fees
should be excluded from the calculation
of AMP. We further propose that, in
light of the statutory definition,
administrative fees and other fees which
are not specifically excluded by the
Affordable Care Act, but which meet the
definition of bona fide service fees,
should also be excluded from the
determination of AMP. We are not
proposing to further define the type of
fees used as examples in the definition
of bona fide service fees because we
believe that these terms can be read in
concert with the current definition of
bona fide service fee. As noted
previously, they provide specific
examples of what could qualify as a
bona fide service fee. We note however
that retroactive price adjustments,
sometimes also known as price
appreciation credits, do not meet the
definition of a bona fide service fee as
they do not reflect any service or offset
of a bona fide service performed on
behalf of the manufacturer.
The statute does not specifically
exclude GPO fees from the AMP
calculation. To the extent that bona fide
service fees, including, but not limited
to distribution service fees, inventory
management fees, product stocking
allowances, and fees associated with
administrative service agreements and
patient care programs (such as
medication compliance programs and
patient education programs) and other
fees to GPOs meet the definition of
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‘‘bona fide service fee,’’ we propose that
such fees should be excluded from the
determination of AMP and are not
considered price concessions. However,
as consistent with the definition of bona
fide service fee at § 447.502 where these
fees are passed on in whole or in part
to a wholesaler or retail community
pharmacy, the fees would not qualify as
bona fide service fees. To the extent this
occurs, such fees cannot be considered
bona fide service fees and, in
accordance with section
1927(k)(1)(B)(ii) of the Act, should be
included in AMP.
l. Customary Prompt Pay Discounts
(§ 447.504(c)(15))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that customary prompt pay discounts
that are extended to wholesalers are to
be excluded from the determination of
AMP. Therefore, we are proposing that
customary prompt pay discounts
extended to wholesalers be excluded
from the determination of AMP.
m. Returned Goods (§ 447.504(c)(16))
Section 1927(k) of the Act, as revised
by the Affordable Care Act, specifies
that reimbursement by manufacturers
for recalled, damaged, expired, or
otherwise unsalable returned goods,
including (but not limited to)
reimbursement for the cost of goods,
and any reimbursement of costs
associated with return goods handling
and processing, reverse logistics, and
drug destruction are excluded from the
determination of AMP. We propose to
incorporate this definition into this rule,
but note that it is applicable only to the
extent that payment for these returned
goods covers the cost of returns and
does not otherwise serve as payment to
the pharmacy as a price concession. In
addition, we propose to exclude the
value of returned goods themselves from
the determination of AMP when
returned in good faith.
We are not proposing to define the
terms recalled, damaged, and expired as
we believe they are self-explanatory
within the standard industry practice.
We likewise are not defining unsalable,
but would also base it on standard
industry practice to determine under
what conditions and/or circumstances
drugs would be considered unsalable.
We are requesting comments regarding
whether we should define these terms
or further define how these industry
standards should be set. We also request
examples of what would qualify as
unsalable.
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n. Medicare Coverage Gap Discount
(§ 447.504(c)(17))
Section 3301 of the Affordable Care
Act established the Medicare Coverage
Gap Discount Program under sections
1860D–43 and 1860D–14A of the Act.
Section 1101(c) of the Affordable Care
Act further specified that discounts
provided by manufacturers under the
Medicare coverage gap discount
program will be excluded from AMP.
Therefore, we propose that discounts
under the Medicare coverage gap
discount program should be excluded
from AMP.
o. PBM Price Concessions
(§ 447.504(c)(18))
Section 1927(k)(1)(B) of the Act, as
revised by the Affordable Care Act,
revised the definition of AMP by
excluding payments received from, and
rebates or discounts provided to,
pharmacy benefit managers (PBMs) and
mail order pharmacies. Therefore, we
propose to exclude from the calculation
of AMP, payments received from and
rebates or discounts provided to PBMs,
including their mail order pharmacy’s
purchases to the extent that no part of
the rebates, discounts or payments are
received by, paid by, or passed through
to retail community pharmacies.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
p. Treatment of Medicaid Rebates in
AMP (§ 447.504(c)(19))
We propose to exclude rebates under
the national rebate agreement or a CMSauthorized State supplemental rebate
agreement paid to State Medicaid
Agencies from the determination of
AMP. We are doing so in light of the
definition of section 1927(k)(1) of the
Act, because these rebates affect the
manufacturer and the State, and there is
no direct effect on the sale price of these
drugs to retail community pharmacies.
Entities not specifically addressed in
the statute.
q. Sales to Hospices (§ 447.504(c)(20))
The Affordable Care Act did not
specifically address the treatment of
sales to hospices in the determination of
AMP. We propose, in light of the
revisions in sections 1927(k)(1)(A) and
1927(k)(10) of the Act, to exclude
hospice sales from the definition of
AMP. Hospice pharmacies are outside
the scope of the definition of retail
community pharmacy. Further, these
pharmacies serve a defined population
and do not dispense medications to the
general public at retail prices.
r. Sales to Prisons (§ 447.504(c)(21))
We propose that the sales to prisons
are outside the scope of the definition
of retail community pharmacy; drugs
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sold to these entities serve a defined
population in that facility and are not
available to the general public.
s. Direct Sales to Physicians
(§ 447.504(c)(22) and § 447.504(d)(1))
Except for the sale of inhalation,
infusion, instilled, implanted and
injectable drugs (also referred to as the
5i drugs, and which are discussed in
detail later in this section) we do not
believe, in light of the definition of
retail community pharmacy in section
1927(k)(10) of the Act, that physicians
meet the definition of a retail
community pharmacy. However, in light
of the specific revisions to section
1927(k)(1)(B)(i)(IV) by section 202 of the
Education Jobs and Medicaid Funding
Act (Pub. L. 111–226), we believe that
certain sales to physicians should be
included in AMP. Since we have
defined the 5i drugs as those which are
primarily physician-administered, we
believe in light of the statutory
amendments, the case can be made that
the sale (and associated discounts) of
these 5i drugs to physicians should be
included in the determination of AMP.
Therefore, we propose in § 447.504(d)(1)
that for 5i drugs, sales (and associated
rebates or discounts) to physicians are
included in the determination of AMP.
However, in the case of non-5i drugs,
we propose at § 447.504(c)(26) that
direct sales to physicians be excluded
from the determination of AMP.
t. Direct Sales to Patients
(§ 447.504(c)(23))
We propose that direct sales to
patients be excluded from AMP as these
sales are outside the scope of the
definition of retail community
pharmacy in section 1927(k)(10) of the
Act.
u. Free Goods (§ 447.504(c)(24))
We propose that where a drug or any
other item is given away, but not
contingent on any purchase
requirement, there is no sale and,
therefore, that transaction would be
excluded from the determination of
AMP.
v. Manufacturer Coupons
(§ 447.504(c)(25))
We propose in light of the revised
definition of AMP that manufacturer
coupons to a consumer redeemed by the
manufacturer, agent, or another entity
acting on behalf of the manufacturer
should be excluded from AMP, but only
to the extent that the full value of the
coupon is passed on to the consumer
and the retail community pharmacy
does not receive any discount, rebate or
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price concessions in connection with
the manufacturer coupons.
w. Voucher Programs (§ 447.504(c)(26))
We propose that manufacturer
vouchers would be excluded from the
determination of AMP because the
benefits of such vouchers are passed
onto the patient and the retail
community pharmacy does not receive
any discount, rebate or price
concessions in connection with the
manufacturer voucher programs.
However, to the extent that the retail
community pharmacy receives a
discount, rebate, or other price
concession, in accordance with section
1927(k)(1)(B)(ii) of the Act, it shall be
included in AMP.
x. Manufacturer-Sponsored Drug
Discount Card Programs
(§ 447.504(c)(27))
We propose in light of the revised
definition of AMP that prices negotiated
under a manufacturer-sponsored drug
discount program would be excluded
from the determination of AMP,
provided the discount is passed on to
the patient and the retail community
pharmacy does not receive any
discount, rebate or price concessions in
connection with the manufacturersponsored drug discount card program.
y. Manufacturer-Sponsored Patient
Refund/Rebate Programs
(§ 447.504(c)(28))
The Affordable Care Act did not
explicitly address the treatment of
prices negotiated under a manufacturersponsored patient refund or rebate
program. To the extent the manufacturer
provides a full or partial refund or
rebate to the patient for out-of-pocket
costs and the retail community
pharmacy does not realize any
discounts or rebates or receive any price
concession in connection with the
manufacturer-sponsored patient refund/
rebate programs, we propose in light of
the revised definition of AMP that
prices negotiated under a manufacturer
sponsored patient refund or rebate
program would be excluded from the
determination of AMP.
z. Copayment and Patient Assistance
Programs (§ 447.504(c)(29))
The Affordable Care Act did not
address the treatment of patient
assistance programs, including
copayment assistance programs. We
believe in light of the revised definition
of AMP that patient assistance
programs, including copayment
assistance programs that provide free
goods that are not contingent on future
purchases to patients would be
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srobinson on DSK4SPTVN1PROD with PROPOSALS2
excluded from the determination of
AMP. Therefore, we propose that such
patient assistance programs and
copayment assistance programs are
excluded from the determination of
AMP. However, to the extent that the
retail community pharmacy receives a
discount, rebate, or other price
concession in connection with the
copayment and patient assistance
programs, in accordance with section
1927(k)(1)(B)(ii) of the Act, it shall be
included in AMP.
6. Inhalation, Infusion, Instilled,
Implanted, and Injectable Drugs
(§ 447.504(d) and § 447.507)
In accordance to section
1927(k)(1)(B)(i)(IV) of the Act,
manufacturers are to exclude from the
determination of AMP for a covered
outpatient drug for a rebate period, any
payments received from, and other
discounts or rebates, that are provided
to any other entity that does not conduct
business as a wholesaler or retail
community pharmacy. Certain specialty
covered outpatient drugs are not
generally dispensed through retail
community pharmacies and in those
instances manufacturers would be
unable to generate an AMP which
would prevent rebate calculations for
those drugs. Section 202 of the
Education, Jobs and Medicaid Funding
Act (Pub. L. 111–226), enacted August
10, 2010, amended the Affordable Care
Act definition of AMP at section
1927(k)(1) of the Act to include sales for
the 5i drugs that are not generally
dispensed through retail community
pharmacies. This provision was added
to ensure that an AMP could be
calculated and Medicaid rebates could
be collected from manufacturers for the
5i drugs that are not generally sold at
retail community pharmacies. (See 156
Cong. Rec. S6766 (Aug. 5, 2010)).
This provision went into effect on
October 1, 2010 and revises a
manufacturer’s AMP calculation for the
5i drugs to include entities other than
retail community pharmacies that
dispense such drugs.
While the enactment of this
legislation addressed the need to ensure
that rebates would be collected for these
5i drugs that are ‘‘not generally
dispensed through retail community
pharmacies,’’ it also raised additional
issues that were not directly addressed
in the statute. Based upon section
1927(k)(1)(B)(i)(IV) of the Act, we have
identified the following issues that
would require further clarification:
(1) Identification of 5i drugs, (2)
clarification of the term ‘‘not generally
dispensed,’’ (3) determination of sales,
discounts and rebates included in the 5i
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calculation, and (4) identification of
other entities included in the definition.
We also received requests from
manufacturers and pharmacies
requesting guidance on this provision;
specifically regarding how to interpret
‘‘not generally dispensed through a
retail community pharmacy’’ and how
to identify these 5i drugs.
We considered issuing a list
identifying the specific 5i drugs that are
to be included in this category. Second,
we considered how to define the term
‘‘not generally dispensed.’’ Finally, we
considered clarifying which sales,
discounts, and other financial
transactions would be included in the
determination of AMP for these drugs.
Based on our understanding of the
market as well as other Federal
programs, we believe most 5i drugs are
administered parenterally or through an
item of durable medical equipment
(DME) and often require physician
supervision during administration. We
considered defining each type of
administration route; however, we
believe that it is not necessary to define
the terms because the terms are
essentially self explanatory. We are
seeking comments on this decision.
We considered using the Medicare
Part B standards to identify 5i drugs,
given that Medicare Part B covers a
limited number of outpatient
prescription drugs that are not usually
self-administered, such as those given in
a hospital outpatient department or
doctor’s office. In addition, Medicare
Part B covers outpatient prescription
drugs provided through an item of
durable medical equipment, such as an
infusion pump or nebulizer, and
injectable drugs administered by a
licensed medical practitioner, if
considered reasonable and necessary.
Medicare Part B does not have a
comprehensive, all inclusive list of
covered inhalation, infusion, injectable,
instilled, or implanted drugs. However,
it already has a publicly available
reference which lists drugs that are ‘‘not
usually self-administered’’ and could be
considered for coverage under Medicare
Part B. In addition, the Medicare Part B
ASP NDC–HCPCS Crosswalk file
identifies drugs that could be
considered for coverage under Medicare
Part B; it is publically accessible on the
CMS Web site at https://www.cms.gov/
McrPartBDrugAvgSalesPrice/
01a19_2010aspfiles.asp and is updated
on a quarterly basis. The Medicare Part
B ASP NDC–HCPCS Crosswalk file also
includes drugs which do not meet the
5i criteria, specifically those oral drugs
covered by Part B following a transplant
as well as Part B oral anti-emetics and
oral cancer drugs. We considered using
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the Medicare Part B ASP NDC–HCPCS
Crosswalk file to identify 5i drugs.
However, we believe it would not be
optimal because it is not an all inclusive
list of inhalation, infusion, instilled,
implanted and injectable drugs and
therefore would likely miscategorize
some 5i drugs.
We also considered whether CMS or
the manufacturers should determine
which drugs qualify as a 5i drug. In
doing so, we considered whether or not
it would be difficult for manufacturers
to determine which drugs should be
classified as an inhalation, infusion,
instilled, implanted, or injectable drugs
for the determination of AMP using the
route of administration approved by the
FDA or based upon the drug’s NDC.
We also considered if we should
identify the 5i drugs based upon their
NDC number. If we were to identify the
5i drugs, we determined it would not
provide reliable data and still require us
to make available, as well as
continuously update, a set of guidelines
that would likely require an outside
data source. In addition to the nuances
of identifying existing drugs, it would
be a continuous challenge to maintain a
reliable list due to an evolving
marketplace with the introduction of
new drugs and removal of existing
drugs.
Although we determined it would not
be practical for CMS to provide a list
identifying the 5i drugs, we considered
providing a list of routes of
administration as identified by the FDA
that we believe would be applicable for
5i drugs. We believe this list would
serve as a guide that manufacturers
would use to determine if a drug could
be considered as a 5i drug. We are
proposing to add § 447.507
Identification of 5i drugs to indicate
how 5i drugs are to be identified. In
§ 447.507(a) we propose to use the
FDA’s Routes of Administration as a
guide to identify 5i drugs. Below is a list
of FDA routes of administration that we
are proposing manufacturers use to
identify 5i drugs. It includes, but is not
limited to, the routes of administration
listed in Table 3. This list comes from
the FDA Structured Product Labeling,
Route of Administration data standards
located at https://www.fda.gov/
ForIndustry/DataStandards/
StructuredProductLabeling/
ucm162034.htm.
TABLE 3—ROUTES OF ADMINISTRATION
FOR 5I IDENTIFICATION
Auricular (Otic)
Conjunctival
Endocervical
Endosinusial
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Intracavitary
Intracerebral
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TABLE 3—ROUTES OF ADMINISTRATION through a retail community pharmacy’’.
Therefore, we also considered how to
FOR 5I IDENTIFICATION—Continued
Endotracheal
Epidural
Extra-Amniotic
Hemodialysis
Infiltration
Interstitial
Intra-Abdominal
Intra-Amniotic
Intra-Arterial
Intra-Articular
Intrabiliary
Intrabronchial
Intrabursal
Intracardiac
Intracartilaginous
Intracaudal
Intralesional
Intralingual
Intraluminal
Intralymphatic
Intramammary
Intramedullary
Intrameningeal
Intramuscular
Intranodal
Intraocular
Intraomentum
Intraovarian
Intrapericardial
Intraperitoneal
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Intrapleural
Intraprostatic
Intrapulmonary
Intraruminal
Intrasinal
Intraspinal
Intrasynovial
Intratendinous
Intratesticular
Intrathecal
Intrathoractic
Intratubular
Intratumor
Intratympanic
Intrauterine
Intravascular
Intravenous
Intraventricular
Intravesical
Intravitreal
Intracorneal
Intracoronal, Dental
Intracoronary
Intracorporus
Cavernosum
Intradermal
Intradiscal
Intraductal
Intraduodenal
Intradural
Intraepicardial
Intraepidermal
Intraesophageal
Intragastric
Intragingival
Intrahepatic
Intraileal
Iontophoresis
Irrigation
Laryngeal
Nasal
Nasogastric
Ophthalmic
Parenteral
Percutaneous
Periarticular
Peridural
Perineural
Periodontal
Rectal
Respiratory (Inhalation)
Retrobulbar
Soft Tissue
Subarachnoid
Subconjunctival
Subcutaneous
Subgingival
Submucosal
Subretinal
Transendocardial
Transmucosal
Transplacental
Transtracheal
Transtympanic
Ureteral
Urethral
Vaginal
We propose that manufacturers
identify 5i drugs based upon the FDA
route of administration list that we have
provided. We are interested in
comments on this proposal, including
comments regarding other FDA routes of
administration that could be used to
identify 5i drugs that are not reflected
on the provided list.
We believe that by utilizing the FDA
route of administration, manufacturers
will be readily able to identify products
which are inhaled, infused, instilled,
implanted, and injected as the
information is readily available.
However, manufacturers would need to
determine if those products identified as
5i drugs are ‘‘not generally dispensed
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establish a standard by which
manufacturers would determine when a
drug is ‘‘not generally dispensed
through a retail community pharmacy.’’
We considered adopting the Medicare
Part B guidelines used to determine if a
drug is to be classified as selfadministered as a way to determine
when a drug is ‘‘not generally
dispensed’’ through a retail community
pharmacy. In accordance with section
1861(s)(2)(A) and 1861(s)(2)(B) of the
Act, the Medicare Benefit Policy
Manual, Chapter 15—Covered Medical
and Other Services, § 50.2(C) provides
guidance regarding the term ‘‘usually.’’
Specifically, it provides that the term is
used to mean more than 50 percent of
the time in determining when a drug is
to be classified as self-administered. In
light of this guidance, we believe that if
a drug can be self administered, it is
reasonable to assume that it is usually
dispensed through a retail community
pharmacy; however, for physicianadministered drugs, we believe it is
reasonable to conclude that the drug
may be provided by physicians or other
licensed practitioner in a variety of
entities (such as clinics and physician’s
offices), and given the nature of the
drugs, are usually not dispensed by a
retail community pharmacy.
If we were to adopt a similar 50
percent methodology for determining
when a drug is not generally dispensed
through a retail community pharmacy, it
would mean that a drug would be
classified as ‘‘not generally dispensed’’
through a retail community pharmacy if
more than 50 percent of the sales were
to an entity other than a wholesaler for
distribution to retail community
pharmacies or retail community
pharmacies that purchase drugs directly
from the manufacturer. We believe that
if we were to adopt a 50 percent
methodology, some 5i drugs which are
self-administered and generally
dispensed through retail community
pharmacies would be included in the
alternate 5i AMP calculation due to the
breadth of the percentage allowed in
this calculation methodology.
We also considered whether we could
use the methodology commonly used by
manufacturers to calculate the
Department of Veterans Affairs (DVA)
non-Federal Average Manufacturer Price
(non-FAMP). This methodology is
described in the draft ‘‘Amended Master
Agreement’’,2 between the Secretary of
2 While the Amended Master Agreement (9/7/00
draft) between the Secretary of Veterans Affairs and
the Manufacturer Identified in Section VIII of this
Agreement has not been finalized and is therefore
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5335
Veterans Affairs and the Manufacturer
in section VII of this Agreement.
Manufacturers, manufacturer
associations, pharmacies and pharmacy
associations have repeatedly referred to
this draft ‘‘Amended Master
Agreement’’ when requesting guidance
from CMS on the issue of defining ‘‘not
generally dispensed’’. According to the
definition of Wholesaler found in the
draft ‘‘Amended Master Agreement,’’
manufacturers are to consider a buyer to
be a wholesaler when drugs with unit
sales of 90 percent or greater are to
retailers, other merchants, industrial,
institutional or commercial users.
Manufacturers are responsible for using
this 90 percent principle as a guideline
to determine when their sales are to
wholesalers in their determination of
non-FAMP. We considered whether it
would be reasonable to apply the same
principle to 5i drug determinations as to
when a drug is ‘‘not generally
dispensed’’ through a retail community
pharmacy. We considered adopting a
similar 90 percent principle because the
definition of AMP, as specified in
section 1927(k)(1)(B) of the Act, as
revised by the Affordable Care Act,
reflects sales to wholesalers for drugs
distributed to retail community
pharmacies (and retail community
pharmacies that purchase drugs directly
from the manufacturer). Therefore, for 5i
drugs, our understanding of the 90
percent principle would be that if 90
percent or more of the manufacturer’s
sales for the respective drug were to an
entity other than a wholesaler for
distribution to retail community
pharmacies or retail community
pharmacies that purchase drugs directly
from the manufacturer, then the drug
would be classified as ‘‘not generally
dispensed’’ through a retail community
pharmacy.
We believe providing a quantitative
method to determine when a drug is
‘‘not generally dispensed’’ through a
retail community pharmacy would be
preferable to a more qualitative drug
specific approach as it provides a more
definitive meaning to the term ‘‘not
generally dispensed’’ through a retail
community pharmacy. Therefore, in this
proposed rule, we propose at
§ 447.507(b)(1) to use the 90 percent
principle to determine when a drug is
not generally dispensed through a retail
community pharmacy. However, we
continue to have some concerns
regarding whether the 90 percent
threshold is reasonable because it might
result in a portion of drugs eligible for
not an official DVA document, it is our
understanding that it is still utilized by those in the
industry when determining non-FAMP.
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the 5i alternate AMP calculation to be
omitted from AMP because the
percentage of sales required to classify
a drug as ‘‘not generally dispensed
through a retail community pharmacy’’
may be too high. Manufacturers that
enter into and have in effect a Medicaid
drug rebate agreement, as set forth in
section 1927(a) of the Act, are
responsible for reporting AMP on a
monthly and quarterly basis. Therefore,
we propose at § 447.507(b)(2) that the
determination of a 5i drug’s status as
‘‘not generally dispensed’’ through a
retail community pharmacy will need to
be evaluated on a monthly and quarterly
basis. We invite comments on this
approach, including comments
indicating if we should consider other
quantitative options (for example, 75
percent, or 50 percent) to identify if a
5i drug is ‘‘not generally dispensed’’
through a retail community pharmacy
and reasons as to why those options
would be appropriate. We also invite
comments on whether manufacturers
should evaluate the status of a 5i drug’s
status as ‘‘not generally dispensed’’
through a retail community pharmacy
on a monthly or quarterly basis.
We further propose at § 447.504(d)
that, in light of section
1927(k)(1)(B)(i)(IV) of the Act, AMP for
these drugs will include all sales,
rebates, discounts, or other financial
transactions already proposed for
inclusion in the determination of AMP
as well as the sales, rebates, discounts,
or other transactions concerning these
drugs, that are provided to the following
non-retail community pharmacy
entities:
• Direct sales to physicians.
• Sales to pharmacy benefit
managers, including their mail order
pharmacy’s purchases.
• Sales to HMOs, including MCOs.
• Sales, discounts, or rebates paid
directly to insurers.
• Sales to hospitals.
• Sales to clinics and outpatient
facilities.
• Sales to mail order pharmacies.
• Sales to long-term care providers,
including nursing facility pharmacies,
nursing home pharmacies, long-term
care facilities, contract pharmacies for
the nursing facility where these sales
can be identified with adequate
documentation, and other entities where
the drugs are dispensed through a
nursing facility pharmacy, such as
assisted living facilities.
• Sales to hospices.
• Sales to other manufacturers who
conduct business as wholesalers or
retail community pharmacies.
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7. Further Clarification on the
Calculation of AMP—§ 447.504(e)
a. Chargebacks and Other Discounts
(§ 447.504(e)(1))
We propose that chargebacks must be
included in the calculation of AMP,
except for those chargebacks provided
to any of the entities that are excluded
from the determination of AMP.
Inasmuch as we believe chargebacks are
based on identified sales to a specific
entity, a manufacturer cannot make
assumptions regarding these
chargebacks and must identify them to
included or excluded AMP sales.
Additionally, we propose that AMP is to
include cash discounts except
customary prompt pay discounts
extended to wholesalers, free goods that
are contingent on any purchase
requirement, volume discounts,
incentives, administrative fees, service
fees (other than bona fide service fees),
distribution fees, and any other rebates,
discounts or other financial transaction,
other than rebates under section 1927 of
the Act, which reduce the price received
by the manufacturer for drugs
distributed to retail community
pharmacies.
b. Quarterly AMP (§ 447.504(e)(2))
Based on prior experience and on the
MDR program submissions we believe
that the quarterly AMP should be
calculated as a weighted average of the
monthly AMPs in the quarter. We
believe that, based on our prior
experience and the similarities of both
calculations, this approach will
minimize discrepancies between the
monthly and the quarterly AMPs.
Therefore, we propose that quarterly
AMP is to be calculated as a weighted
average of monthly AMPs in the quarter.
c. Manufacturer Adjustments
(§ 447.504(e)(3))
To account for discounts, rebates or
other price concessions that may not be
available during the rebate reporting
period, we propose that the
manufacturer must adjust the AMP for
the applicable rebate period if
cumulative discounts, rebates, or other
arrangements subsequently adjust the
prices actually realized, to the extent
that these discounts, rebates or
arrangements are not excluded from the
determination of AMP by statute or
regulation.
D. Determination of Best Price
(§ 447.505)
1. Definitions of Best Price and
Providers
We are proposing re-codifying the
terms ‘‘best price’’ and ‘‘Providers’’
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under newly proposed § 447.505(a).
Additionally, we are proposing to revise
the definition of the term ‘‘best price’’
at newly proposed § 447.505(a) so that
it is consistent with the definition of
best price found in section 1927(c)(1)(C)
of the Act.
2. Prices Included in Best Price
We believe that revising the definition
of best price to be consistent with the
definition provided in the statute
provides sufficient detail as to which
prices are to be included in the
determination of best price. Therefore,
we further propose the ‘‘Prices included
in best price,’’ currently located in
regulations at § 447.505(c)(1)–(11), be
redesignated to § 447.505(b) and that it
would be revised to remove the list of
prices included in best price. Instead,
the paragraph would read as follows:
‘‘Except for those prices identified in
paragraph (c) of this section, best price
for covered outpatient drugs includes all
prices and associated rebates, discounts,
or other transactions that adjust prices
either directly or indirectly.’’
3. AMP Methodology Applied to Best
Price
In order to provide consistency
between the AMP and best price
sections, where applicable, we are
proposing to apply the same
methodology to best price that we are
applying to AMP. This will be
accomplished by making the following
revisions to the prices exempt from best
price section. We propose the ‘‘Prices
excluded from best price,’’ currently
located in regulations at
§ 447.505(d)(1)–(13), be redesignated to
§ 447.505(c)(1)–(18). The current list of
prices excluded from best price would
be expanded to include three new price
exclusions not currently identified in
regulations. They are (1) manufacturer
vouchers, (2) manufacturer-sponsored
patient refund/rebate programs and (3)
sales outside of the United States. These
terms have been discussed earlier in the
Determination of AMP section and the
addition of them to the prices excluded
from best price serves to align best price
and AMP. We also propose to revise the
phrasing of several of the existing prices
listed in the ‘‘prices excluded from best
price’’ section so they are consistent
with the phrasing of the same items
listed in the ‘‘sales excluded from the
determination of AMP’’ section of the
regulation. These changes do not alter
the meaning or intention of the section,
and applies the same treatment of sales,
prices and discounts, where applicable,
to best price that we are applying to
AMP.
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4. 340B Expanded List of Covered
Entities Exempt From Best Price
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In accordance with section 7101 of
the Affordable Care Act, we are
proposing to clarify how manufacturers
are to treat orphan drugs sold to new
covered entities described in sections
340B(a)(4)(M), (N) and (O) of the PHSA
for best price. The Affordable Care Act
expanded the list of entities eligible to
enroll in the 340B drug pricing program
to include certain children’s hospitals,
freestanding cancer hospitals, critical
access hospitals, rural referral centers,
and sole community hospitals.
Additionally, the Affordable Care Act
amended the PHSA by excluding certain
orphan drugs from being considered
covered outpatient drugs for these
newly covered entities. Section 204 of
the Medicare and Medicaid Extenders
Act of 2010 (Pub. L. 111–309) excludes
certain children’s hospitals from this
exclusion, effective as if included in the
enactment of section 2302 of the HCERA
of 2010. In accordance with sections
1927(a)(5)(B) and 1927(c) of the Act, we
propose that manufacturers can exclude
only drugs purchased under the 340B
Drug Pricing program from their best
price calculation where the covered
entities meet the conditions set by
PHSA. We believe there may be
circumstances in which covered entities
purchase drugs outside of the 340B
program, such as instances when drugs
are purchased for inpatient use, drugs
that have both inpatient and outpatient
uses, and when a covered entity
purchases drugs outside the 340B
program to dispense to its Medicaid
patients. In order to better understand
the purchasing practices of covered
entities and the scope of our proposed
policy on best price, we invite
comments regarding other
circumstances in which covered entities
purchase drugs outside of the 340B
program. We believe that this position is
consistent with our reading of these
provisions and as a result strengthens
the integrity of the MDR program
because covered entities are prohibited
from diverting drugs purchased under
340B authority to anyone who is not a
patient of the covered entity. These
requirements are proposed in a new
regulation at § 447.505(c)(2)(i) and (ii).
5. Medicare Coverage Gap Discount
Program (The Discount Program)
The Affordable Care Act established
the Discount Program under sections
1860D–43 and 1860D–14A of the Act.
The Discount Program makes
manufacturer discounts available to
applicable Medicare beneficiaries
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receiving applicable covered Part D
drugs while in the coverage gap.
In general, the discount on each
applicable covered Part D drug is 50
percent of an amount that is equal to the
negotiated price. In accordance with the
Affordable Care Act, manufacturer
discounts attributed to the Discount
Program will be excluded from the
determination of best price as defined in
§ 447.505(c)(6).
E. Authorized Generics Drugs
(§ 447.506)
We propose to remove the definition
of ‘‘Authorized generic drugs’’ from
§ 447.506(a), as discussed in section
II.B.1 of this regulation. In § 447.506(a),
we propose to define the term ‘‘Primary
manufacturer’’ to mean a manufacturer
that holds the NDA of the authorized
generic drug. We also propose to define
the term ‘‘Secondary manufacturer of an
authorized generic drug’’ to mean a
manufacturer that is authorized by the
primary manufacturer to sell the drug,
but does not hold the NDA. In
§ 447.506(b), we propose to revise the
existing paragraph to specify that sales
of an authorized generic drug must be
included in the AMP calculation of the
manufacturer holding the NDA, referred
to in this discussion as the primary
manufacturer, when such drugs are
being sold directly to a wholesaler. In
accordance with section 1927(k)(1)(C) of
the Act, we propose in § 447.506(b) to
require that the primary manufacturer of
an authorized generic, include in its
calculation of AMP all sales of its
authorized generic drug product sold or
licensed to a secondary manufacturer,
including transfer prices and fees paid
by the secondary manufacturer to the
primary manufacturer, when the
secondary manufacturer is acting as a
wholesaler, as set forth in section
1927(k)(11) of the Act. Additionally, the
primary manufacturer holding the NDA
must also include those sales in its AMP
calculation that it makes directly to
wholesalers including other
manufacturers acting as wholesalers.
In § 447.506(c), we propose to revise
the existing paragraph to specify that a
primary manufacturer holding the NDA
must include the best price of an
authorized generic drug in its
computation of best price for a single
source or innovator multiple source
drug during a rebate period to any
manufacturer, wholesaler, retailer,
provider, HMO, non-profit entity, or
governmental entity in the United
States, when such drugs are being sold
by the primary manufacturer holding
the NDA.
Further, we propose to add a new
§ 447.506(d) to specify that the
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5337
secondary manufacturer of an
authorized generic drug must also
provide a rebate based on its sales of
authorized generic drugs, and must
calculate AMP and best price consistent
with the requirements specified at
§ 447.504 and § 447.505 respectively.
F. Exclusion From Best Price of Certain
Sales at a Nominal Price (§ 447.508)
Currently, the existing regulations at
§ 447.508(a) defines nominal sales
which should be excluded from a
manufacturer’s best price calculation
only when made to 340B covered
entities as defined in section 340B(a)(4)
of the PHSA, ICFs/MR, State-owned or
operated nursing facilities and safety net
providers or facilities/entities which the
Secretary determines to be eligible.
Previously, the Secretary did not
exercise the authority to add other
safety net providers for which sales at
nominal prices are excluded from best
price. Section 221 of the Omnibus
Appropriations Act, 2009, Public Law
111–8, enacted on March 11, 2009,
revised section 1927(c)(1)(D) of the Act
by expanding the definition of nominal
priced sales to include sales of covered
outpatient drugs to two new categories
of entities. The expansion allows public
or nonprofit entities (as defined by the
Internal Revenue Service (IRS)), or
State-owned or operated facilities
providing the same services to the same
populations as 340B(a)(4) entities of the
PHSA but not funded as such and in
compliance with the prohibition on
abortion services as set forth in section
1008 of the PHS Act or academic health
care centers providing family planning
services to be eligible for the nominal
priced sales.
We propose to revise § 447.508(a) to
include the additional entities to which
manufacturers may have nominal price
sales excluded from best price. To
qualify for the exception, entities must
meet the criteria set forth below for
either of the two new categories:
• Category 1 criteria:
+ The entity is an exempt
organization as defined by section
501(c)(3) of the Internal Revenue Code
of 1986; and exempt from tax under
section 501(a) of such Act, or is Stateowned or operated; and,
+ Provides the same type of services
to the same type of populations as a
covered entity described in 340B(a)(4) of
the PHS Act but does not receive
funding under such section.
• Category 2 criteria: The entity is a
public or nonprofit entity or an entity
based at an institution of higher
learning, whose primary purpose is to
provide health care services to students
of that institution, that provides a
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service or services as described under
section 1001(a) of the PHS Act, 42
U.S.C. 300.
The legislation further provides that
nothing in section 1927(c)(1)(D) of the
Act should be construed to alter any
existing statutory or regulatory
prohibition on services for Category 1
entities, including the prohibition set
forth in section 1008 of the PHSA.
Because these additions appear to
address those nominal price sales that
are not related to a manufacturer’s
attempt to influence market share or for
other marketing reasons, we are again
choosing not to identify any further
entities for which manufacturer
nominally priced sales would be exempt
from best price.
G. Medicaid Drug Rebates (§ 447.509)
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1. Determination of Rebate Amount
(§ 447.509(a))
Manufacturers that participate in the
MDR program are required to pay
rebates for covered outpatient drugs that
are dispensed to Medicaid patients. The
rebates are calculated based on formulas
described in section 1927(c) of the Act.
As described in the ‘‘Background’’
section above, the Affordable Care Act
made several revisions to the statutory
rebate formulas. In light of these
revisions, we propose to incorporate the
rebate formulas into Federal regulations.
We propose in § 447.509(a)(1) that the
basic rebate, for each dosage form and
strength of a single source drug or an
innovator multiple source drug, will be
equal to the total number of units of
each dosage form and strength paid for
under the State plan in the rebate period
multiplied by the greater of the
difference between the AMP and best
price of the drug or the AMP multiplied
by:
• 17.1 percent for a clotting factor for
which a separate furnishing payment is
made under section 1842(o)(5);
• 17.1 percent for a drug approved by
the FDA exclusively for pediatric
indications; or
• 23.1 percent for all other single
source drugs and innovator multiple
source drugs.
We note that all clotting factors would
not qualify for the minimum rebate
percentage of 17.1 percent of AMP. Only
those clotting factors for which a
separate furnishing payment is made
under section 1842(o)(5) of the Act
would qualify as defined under the
definition of clotting factors. Similarly,
all drugs with pediatric indications
would not qualify for the minimum
rebate percentage of 17.1 percent of
AMP. Only those drugs approved by the
FDA exclusively for pediatric
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indications, in accordance with our
proposed definition in § 447.502, would
qualify.
We propose in § 447.509(a)(2) that the
additional rebate for single source and
innovator multiple source drugs will be
equal to the number of units for such
dosage form and strength paid for under
the State plan in the rebate period
multiplied by the amount, if any, by
which the AMP for the dosage form and
strength of the drug for the period
exceeds the base date AMP for such
dosage form and strength, increased by
the percentage by which the CPI–U for
the month before the month in which
the rebate period begins exceeds such
index.
We propose in § 447.509(a)(3) that the
total rebate amount for single source
drugs and innovator multiple source
drugs will be equal to the basic rebate
amount plus the additional rebate
amount, if any. We also propose at
§ 447.509(a)(5) that in no case will the
total rebate amount exceed 100 percent
of the AMP of the drug.
2. Treatment of New Formulations
(§ 447.509(a)(4))
The Affordable Care Act established a
separate formula for calculating the unit
rebate amount for a drug that is a line
extension of a single source drug or an
innovator multiple source drug that is
an oral solid dosage form. For such a
line extension drug, the rebate amount
will be the amount calculated under
section 1927 of the Act or, if greater, the
product of the AMP for the line
extension drug, the highest additional
rebate (calculated as a percentage of
AMP) under section 1927 for any
strength of the original single source or
innovator multiple source drug, and the
total number of units of each dosage
form and strength of the line extension
drug paid for under the State plan in the
rebate period (as reported by the State).
We propose to incorporate this
calculation in § 447.509(a)(4).
The statute defines a line extension
for purposes of the rebate calculation as
a new formulation of a drug such as an
extended release formulation. However,
the statute did not provide further
specificity as to how line extensions
should be defined. Therefore, as
previously described in the definition of
a line extension, we will define line
extension at § 447.502. CMS plans to
define a line extension drug as a single
source or innovator multiple source
drug that is an oral solid dosage form
that has been approved by the FDA as
a change to the initial brand name listed
drug in that it represents a new version
of the previously approved drug, such
as a new ester, a new salt, or other
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noncovalent derivative; a new
formulation of a previously approved
drug; a new combination of two or more
drugs; or a new indication for an already
marketed drug. Single source or
innovator multiple source drugs that
receive exclusivity are not proposed to
be excluded from the definition of a line
extension drug. For the purpose of
calculating the unit rebate amount
under the Affordable Care Act, we
propose that both the initial brand name
drug and the line extension drug have
to be an oral solid dosage form drug. We
also propose to exclude a new strength
of the initial brand name drug from the
definition of a line extension drug. We
have adopted this policy in order to
capture all new formulations (including
extended release formulations) and
potential line extensions of single
source or innovator multiple source
drugs. Further, we believe this policy is
consistent with our understanding of
the line extension provisions in the
Affordable Care Act. We invite
comments from the public on this
proposed policy.
We do not plan to exclude
reformulations of existing products that
incorporate abuse deterrent technologies
from the definition of line extension
drugs. The goal of these new
formulations are to mitigate the risk of
abuse—as opposed to the outright
elimination of abuse—by preventing
alternate routes of administration, or
employing physical barriers that resist
common methods of tampering, thus
abuse deterrent formulations (ADFs)
have the potential to decrease abuse of
prescription drugs and improve patient
and public safety. Some examples of
abuse deterrent strategies that are under
development include combination oral
formulation products with an opioid
agonist and opioid antagonist,
formulations with other aversive
characteristics, prodrugs, physically
impenetrable formulations, and drugdevice combinations with patient
recognition capability. However, the
statute does not exclude reformulated
drugs incorporating abuse deterrent
technologies from the definition of a
line extension drug and thus we do not
plan to exclude drugs with this labeling
from the definition. The types of drugs
that we are considering as line
extension drugs include these
reformulated products.
FDA draft guidance on the assessment
of abuse potential of drugs can be found
at https://www.fda.gov/downloads/
Drugs/GuidanceComplianceRegulatory
Information/Guidances/UCM198650.
pdf.
We are soliciting feedback from the
industry, the public, and other
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stakeholders regarding whether existing
or future reformulated products
incorporating an abuse deterrent
technology should be subject to the
additional rebate formula under the
Affordable Care Act.
We have determined that we do not
have the ability to identify the line
extension of the initial brand name
listed drug based on manufacturer
rebate submissions. We consulted with
the FDA to determine if the FDA
currently keeps a list of line extension
drugs as we have defined the term, and
the FDA does not. Thus, we reviewed
the drug information and data files
publicly available at the FDA and
propose to use the FDA’s list of
Chemical Types to identify the line
extension drug as well as the initial
brand name listed drug of the line
extension drug.
The FDA classification is given to
nonbiologic products during the review
process and is finalized when the NDA
is approved. This classification consists
of Chemical Type classification, which
classifies these drugs according to the
type of change made to the initial brand
name product. Chemical Type
represents the newness of a drug
formulation or a new indication for an
existing drug formulation, as noted in
https://www.fda.gov/Drugs/information
ondrugs/ucm079436.htm. The FDA
classifies all NDAs based on Chemical
Type. One measure of innovation is the
newness of the listed drug or the drug’s
active ingredient. The Chemical Type
may identify the drug as new, or as
related to the active ingredient of
another drug that has already been
approved.
Based on the analysis of the FDA’s
drug information and data files, we
propose to use Chemical Types 2, 3, 4,
and 6 on the FDA’s list of Chemical
Types below as an indicator for line
extension drugs as shown in Table 4.
TABLE 4—NEW DRUG APPLICATION
CHEMICAL TYPES
Meaning
1 ............
2 ............
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Number
New molecular entity (NME).
New ester, new salt, or other
noncovalent derivative.
New formulation.
New combination.
New manufacturer.
New indication.
Drug already marketed, but without an approved NDA.
OTC (over-the-counter) switch.
3
4
5
6
7
............
............
............
............
............
8 ............
Chemical Type 2 (new ester, new salt,
or other noncovalent derivative)
represents the incorporation of different
salts or esters, or other noncovalent
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derivatives (such as a complex, chelate,
or clathrate) of the molecule,
responsible for the physiological or
pharmacological action of the drug
substance of an approved
pharmaceutical ingredient into a
marketed dosage form which represents
a change to the listed drug (21 CFR
314.108(a)). We propose to identify this
Chemical Type as a line extension
because it describes a new version of the
initial brand name listed drug.
Chemical Type 3 (new formulation of
a previously approved drug) (not a new
salt or new molecular entity) represents
a change in the inactive ingredients
(excipients) in a drug but no change in
the amount of active ingredient. A new
formulation may be a dosage form that
contains the same active ingredient as
was previously approved in a different
dosage form as the initial brand name
listed. Chemical Type 4 (new
combination) represents a drug
comprised of two or more components
that are physically, chemically, or
otherwise combined or mixed to
produce a single drug product. We
propose to identify this Chemical Type
as a line extension because the new
combination of the initial brand name
listed drug of two or more active
ingredients represents a new
formulation of the initial brand name
listed drugs that are combined to form
one drug product.
Chemical Type 6 (new indication for
an already marketed drug) represents a
change in the description of use of an
already marketed initial brand name
listed drug in the prevention, treatment,
or diagnosis of a recognized disease or
condition. According to the National
Institute for Health Care Management,
research performed on drugs that are
already on the market may reveal that
they provide safe and effective
treatments for diseases or conditions
other than the indication(s) for which
the product was originally approved.
We propose to identify this Chemical
Type as a line extension because there
is an approval for a new indication that
represents a change to the initial brand
name listed drug.
Chemical Type 1 (new molecular
entity) represents an active ingredient
that has never before been marketed in
the United States in any form. CMS
proposes to use this Chemical Type to
identify the initial brand name listed
drug of a line extension.
Chemical Type 5 (new manufacturer)
is assigned to an already marketed drug
when it has: (1) A new manufacturer, or
(2) a product that duplicates another
manufacturer’s already marketed drug
product. We do not propose to consider
this Chemical Type as a line extension
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5339
because the change is a non drug-related
change; rather, it is simply a transfer of
the application from one manufacturer
to another.
Chemical Type 7 (drug already
marketed, but without an approved new
drug application (NDA)) represents
drugs that have not been approved by
the FDA. We do not propose to consider
this Chemical Type as a line extension
because these drugs have not been
approved by the FDA.
Chemical Type 8 (OTC (over-thecounter) switch) represents the process
of transferring FDA-approved
prescription medications to
nonprescription, OTC status. We do not
propose to consider this Chemical Type
as a line extension because there is no
new formulation of the initial brand
name listed drug.
We plan to identify line extension
drugs by using drug information that is
publicly available on the FDA Web
sites. As stated, CMS currently does not
have the ability to identify whether a
drug is a line extension and which drug
is the initial brand name listed drug of
the line extension drug based on
manufacturers’ MDRP submissions.
Therefore, we plan to rely on drug
information obtained from the FDA. In
order for us to identify the line
extension drugs using the FDA’s drug
information to calculate the additional
rebate, there are essentially five criteria
that we believe must be met. First, the
line extension drug should be a single
source drug or innovator multiple
source drug. Manufacturers are already
required to report to CMS if their ninedigit NDC drug is a single source drug,
innovator multiple source drug, or noninnovator multiple source drug;
therefore, we have the information to
make this determination.
Second, the line extension drug has to
be an oral solid dosage form of a single
source drug or innovator multiple
source drug in accordance with the
definition of an oral solid dosage form
previously provided.
Third, the line extension is identified
based on Drugs@FDA’s application file.
Since we currently do not have the
ability to identify whether the drug is
the actual line extension of the initial
brand name listed drug based on
manufacturers’ submissions, we propose
to rely on the FDA’s list of Chemical
Types to identify which drug is a line
extension drug, as described above.
Because we do not approve new drugs
or changes to a drug, using the Chemical
Types would permit us to identify line
extension drugs based on FDA data,
since the FDA currently has an
identifier for the Chemical Types in
their Drugs@FDA’s application file.
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Fourth, the initial brand name listed
drug of the line extension drug needs to
be identified to calculate the Affordable
Care Act unit rebate amount for the line
extension drug. Again, as described
above, we plan to use Chemical Type 1
to assist us in tracking back to the initial
brand name listed drug of the line
extension drug. Chemical Type 1 is
assigned to an active ingredient that has
not been marketed in the United States
in any form; therefore, we have decided
that this can be used as the initial brand
name listed drug identifier. An active
ingredient that has never been marketed
in the United States would be approved
by the FDA under a new NDA with no
therapeutic equivalents, which would
meet our definition of a single source
drug. If there are therapeutic equivalents
for the single source drug, then the drug
category would change to an innovator
multiple source drug in accordance with
the rebate definition of an innovator
multiple source drug. However, the
innovator multiple source drug would
retain the same NDA that was assigned
to the single source drug that was first
approved by the FDA. Additionally, the
initial brand name listed drug has to be
an oral solid dosage form per our
definition of an oral solid dosage form.
Lastly, CMS currently collects drug
product and pricing information by
NDC, not by active ingredient. However,
the FDA information is mainly available
by active ingredient. Therefore, we need
to identify the line extension drugs by
NDC. In order for CMS to translate the
active ingredient into NDC, a manual
matching process has to be done to
match the Drugs@FDA’s application file
against the FDA’s Orange Book’s
product file: (1) To extract the Chemical
Type and the application number, (2) to
identify the oral solid dosage form, and
(3) to obtain the FDA approval date for
each drug. This file will then be
matched with the FDA’s NDC
Directory’s application and listing files
to identify the NDC of each active
ingredient to compile a master list of all
initial brand name listed drugs and their
line extension drugs by NDC. This
master list will then be matched by NDC
against the CMS’ drug product file to
identify which of CMS’ NDCs are the
initial brand name listed drugs and
which are the line extension drugs.
Since NDCs enter and exit the MDRP
frequently, we propose to update the
master list based on the FDA’s drug
information on a quarterly basis and
then match the master file against CMS’
drug product file to identify new initial
brand name listed drugs and new line
extension drugs for the initial three
quarters. Following these initial three
updates, manufacturers will be
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responsible for identifying and reporting
to CMS which of their NDCs is the
initial brand name listed drug and
which is the line extension drug. This
is necessary to effectuate the line
extension provisions of the Affordable
Care Act. Additionally, as mentioned in
the definition of a line extension drug,
we propose that a new strength of the
initial brand name listed drug would
not qualify as a line extension drug.
Furthermore, if we were to consider a
new strength to be a line extension, it
would be difficult to identify the first
strength of the initial brand name listed
drug because multiple strengths are
often launched simultaneously and
CMS would not be able to track back to
the first strength of the initial brand
name listed drug. We invite comments
from the public on all aspects of this
proposed policy.
We also do not plan to exclude a
single source or innovator multiple
source drug that receives 3-year
exclusivity, pediatric exclusivity, or 7year orphan drug exclusivity from the
definition of a line extension drug. Drug
manufacturers may separately obtain a
3-year exclusivity or a pediatric
exclusivity. Drug manufacturers can
reformulate a drug before it goes off
patent by developing a new formulation
such as a time-release version or by
combining it with another existing drug,
marketing it for another illness, or
claiming a patent on an inactive
ingredient. The 3-year exclusivity
protection as indicated in sections
505(c)(3)(D)(iii), (c)(3)(D)(iv),
(j)(5)(D)(iii), and (c)(5)(D)(iv) of the
FFDCA, and at 21 CFR 314.108 is
granted for a drug product that contains
an active moiety that has been
previously approved, when the
application contains reports of new
clinical investigations (other than
bioavailability studies) conducted or
sponsored by the sponsor that were
essential to approval of the application.
This exclusivity requires conducting
new clinical studies that are judged to
be essential for approval of the change.
Changes to a drug that qualify for this
exclusivity are changes that we are
considering for the definition of a line
extension drug.
According to section 505A of FFDCA
(Food and Drug Administration
Modernization Act (FDAMA) and Best
Pharmaceuticals for Children Act
(BPCA), drug manufacturers can also
apply for a pediatric exclusivity, which
permits certain applicants to obtain an
additional 6-month period of exclusivity
on the use of a drug moiety in pediatric
patients. We do not plan to exclude
drugs that have this exclusivity from the
definition of line extension drugs.
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According to sections 526–527 of
FFDCA and regulations at 21 CFR 316,
drug manufacturers can apply for a
7-year orphan drug exclusivity. Orphan
drug exclusivity promotes research and
marketing for the development of drugs
to treat rare diseases, defined as a
disease affecting 200,000 or fewer
patients in the United States, by
granting a 7-year protection against
competition for the designated orphan
indication. We do not plan to exclude
drugs that have this exclusivity from the
definition of line extension drugs.
For the purpose of calculating the unit
rebate amount (URA) for the line
extension drug, the highest additional
rebate as added by the Affordable Care
Act for a line extension shall be referred
to as the Alternative URA. We propose
to interpret section 1927(c)(2) to provide
that the URA determination is based on
the greater of the Standard URA
calculated under section 1927 of the Act
without regard to the alternative rebate
calculation provided in the Affordable
Care Act, or the Alternative URA for the
line extension drug under the
Affordable Care Act. As previously
stated, to effectuate the line extension
provisions of the Affordable Care Act,
we propose that both the initial brand
name listed drug and the line extension
drug are reported to CMS under the
MDR program for the purpose of
calculating the URA for a line extension
drug.
Additionally, to calculate the
Alternative URA, the line extension
drug should be tracked back to the
initial brand name listed drug. We
recognize that there are multiple issues
when it comes to tracking the line
extension back to the initial brand name
drug, such as when the line extension
drug and the initial brand name listed
drug are marketed by two different
manufacturers or when the initial brand
name listed drug has been terminated
from the Medicaid drug rebate program.
However, in accordance with the
statute, manufacturers are responsible
for calculating the Alternative URA for
their line extension drugs.
We propose that when the initial
brand name listed drug has been
terminated that manufacturers should
not be responsible for calculating the
Alternative URA. The initial brand
name listed drug must be active in the
Medicaid drug rebate program to
calculate the Alternative URA. We
propose that we would calculate the
URA for line extension drugs and will
provide this amount to States on the
quarterly rebate tape as in the current
rebate process. However, in accordance
with the current process, manufacturers
are responsible for calculating and
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making rebate payments to each State
Medicaid Agency. Therefore,
manufacturers are responsible for
ensuring that all necessary product and
pricing data, whether such information
is for the initial brand name listed drug
or the line extension drug, are
exchanged between the manufacturer of
the initial brand name listed drug and
the manufacturer of the line extension
drug to accurately calculate the URA for
the line extension drug and provide
rebates in accordance with the statute.
As provided in § 447.509(a)(5),
section 2501(e) of the Affordable Care
Act added section 1927(c)(2) of the Act
to cap the URA at 100 percent of AMP
for all brand name drugs. Therefore, this
cap will also apply to the URA
calculation for the line extension drugs
as well.
Below are the proposed steps
outlining how we plan to calculate the
URA for a line extension drug. For
clarification purposes, the highest
additional rebate as added by the
Affordable Care Act for a line extension
shall be referred to as the ‘‘Alternative
URA’’ and the URA calculation based
on section 1927 of the Act (without
regard to the alternative rebate
calculation provided in the Affordable
Care Act) shall be referred to as
‘‘Standard URA.’’
Step 1—Standard URA = Basic Rebate
Amount + Additional Rebate Amount
Step 2—The Alternative URA is calculated
as the product of the AMP of the line
extension that is an oral solid dosage form
and the highest additional rebate (calculated
as a percentage of AMP) for any strength of
the original drug.
Step 3—URA = The greater of (1) Standard
URA or (2) the Alternative URA.
Step 4—Determine if the URA is greater
than 100 percent of AMP.
a. If the URA is greater than 100 percent
of AMP, then the URA = AMP.
b. If the URA is less than 100 percent of
AMP, then use the calculated URA.
Below is an example of calculating
the URA for a line extension drug.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
Baseline AMP (line extension) = 100.00
AMP (line extension) = 300.00
Best Price (line extension) = 250.00
Baseline CPI–U = 170.00
CPI–U = 200.00
Step 1—Calculate Standard URA
Greater of
a. AMP × 23.1% = 300.00 × 23.1% = 69.30
or
b. AMP ¥ Best Price = 300.00 ¥ 250.00
= 50.00
The greater of the two results (69.30 or
50.00) is 69.30
Basic Rebate Amount for the line extension
drug = 69.30
Additional Rebate Amount calculated
under section 1927 of the Act Formula: If the
[(Baseline AMP/Baseline CPI–U) × CPI–U] is
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less than the quarterly AMP, subtract
[(Baseline AMP/Baseline CPI–U) × CPI] from
the quarterly AMP to determine the
additional URA. If the [(Baseline AMP/
Baseline CPI–U) × CPI] is equal to or greater
than the quarterly AMP, the additional URA
is equal to zero.
[(Baseline AMP/Baseline CPI–U) × CPI–U]
= 100/170 × 200 = 0.5882 × 200 = 117.65
117.65 is less than 300.00; then, 117.65 is
subtracted from 300.00, 300.00 ¥ 117.65 =
182.35
Additional Rebate Amount under section
1927 = 182.35
Standard URA = 69.30 + 182.35 = 251.65
Step 2—Calculate the Alternative URA
AMP (line extension) = 300.00
AMP (initial brand name listed drug)
strength A = 280.00
AMP (initial brand name listed drug)
strength B = 275.00
AMP (initial brand name listed drug)
strength C = 270.00
Additional Rebate Amount (initial brand
name listed drug) strength A = 200.00
Additional Rebate Amount (initial brand
name listed drug) strength B = 125.00
Additional Rebate Amount (initial brand
name listed drug) strength C = 110.00
Strength A additional rebate amount ratio
= 200/280 = 0.7143
Strength B additional rebate amount ratio
= 125/275 = 0.5636
Strength C additional rebate amount ratio
= 110/270 = 0.4074
Highest additional rebate (calculated as a
percentage of AMP) for any strength of the
initial brand name listed drug = 0.7143
Alternative URA = Product of the AMP of
the line extension that is an oral solid dosage
form and the highest additional rebate
(calculated as a percentage of AMP) for any
strength of the original drug
Alternative URA = 300 × 0.7143 = 214.29
Step 3—URA of the line extension drug =
the greater of
(1) Standard URA = 251.65 or
(2) Alternative URA = 214.29
URA of the line extension drug = 251.65
Step 4—Determine if the URA is greater
than 100 percent of AMP.
AMP (line extension) = 300.00 = 100% ×
300.00 = 300.00
URA = 251.65
URA is less than 100 percent of AMP;
therefore, URA is equal to 251.65
3. Rebates for Drugs Dispensed Through
Medicaid Managed Care Organizations
(MCOs) (§ 447.509(b))
From the inception of the MDR
program, section 1927(j)(1) of the Act
exempted participating manufacturers
from paying drug rebates for drugs
dispensed to individuals enrolled in
MCOs. The Affordable Care Act
eliminated this exemption. Effective
March 23, 2010, section 1927(b) of the
Act, as amended by section 2501(c) of
the Affordable Care Act requires
manufacturers that participate in the
drug rebate program to pay rebates for
drugs dispensed to individuals enrolled
with a Medicaid MCO if the MCO is
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5341
responsible for coverage of such drugs.
The requirement to collect rebates
beginning March 23, 2010 is irrespective
of any existing contracts States may
have with MCOs. To comply with this
section of the law and to assure that
States fully collect these increased
rebates, States must obtain utilization
data from each Medicaid MCO in order
for States to request quarterly rebates
from manufacturers as well as report it
in their quarterly utilization reports to
CMS. This data reporting will also have
other quality-related benefits for States
and the Medicaid program in terms of
providing timely information on drug
utilization.
Section 2501(c) of the Affordable Care
Act also amended section 1903(m)(2)(A)
of the Act, effective March 23, 2010, by
adding new conditions for Federal
financial participation for MCO
contracts including that:
• Any covered outpatient drug
provided by the MCO is eligible for the
rebates authorized under section 1927 of
the Act;
• MCO capitation rates will be based
on actual cost experience related to
rebates and subject to Federal
regulations at § 438.6 regarding actuarial
soundness of capitation payments; and
• The MCO must report to the State
information on the total number of units
of each dosage form, strength and
package size by NDC of each covered
outpatient drug dispensed to Medicaid
MCO enrollees and such other data that
the Secretary determines necessary for
the State to access the rebates
authorized by this provision.
Section 2501(c) also made a
conforming amendment to section
1927(j)(1) of the Act, effective March 23,
2010, to specify that certain covered
outpatient drugs in this section are not
subject to the rebate requirements if
such drugs are both dispensed by health
maintenance organizations (HMOs),
including Medicaid MCOs that contract
under section 1903(m), and are subject
to discounts under section 340B of the
Public Health Service Act.
In accordance with these revisions to
sections 1927 and 1903 of the Act, we
propose a new § 447.509(b). In
§ 447.509(b)(1), we propose to require
participating manufacturers to pay
rebates for covered outpatient drugs
dispensed to individuals enrolled in
Medicaid MCOs if the MCO is
responsible for payment for such drugs.
In § 447.509(b)(2), we propose that
manufacturers are exempt from the
requirement in paragraph (b)(1) if such
drugs are dispensed by health
maintenance organizations, including
MCOs that contract under section
1903(m) of the Act, and subject to
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discounts under section 340B of the
PHS Act. In § 447.509(b)(3), we propose
that a Medicaid MCO that is responsible
for covered outpatient drugs dispensed
to Medicaid beneficiaries must submit a
report to the State within thirty days of
the end of each quarter. We also propose
the specific data that MCOs must
include in such reports. It is expected
that the States will ensure that the
MCOs comply with providing timely
utilization data to meet the State
reporting requirements.
4. Federal Offset of Rebates
(§ 447.509(c))
Section 2501(a)(2) of the Affordable
Care Act added section 1927(b)(1)(C) of
the Act, which provides that, effective
January 1, 2010, the amount of the
savings resulting from the increases in
the rebate percentages described above
will be remitted to the Federal
government. These offset amounts are in
addition to the amounts applied as a
reduction under section 1927(b)(1)(B) of
the Act.
We propose to calculate the offset as
described below.
For single source or innovator
multiple source drugs that are subject to
a minimum rebate percentage of 23.1
percent of AMP:
• If the difference between AMP and
best price is less than or equal to 15.1
percent of AMP, then we propose to
offset the full 8 percent of AMP (the
difference between 23.1 percent of AMP
and 15.1 percent of AMP).
• If the difference between AMP and
best price is greater than 15.1 percent of
AMP but less than 23.1 percent of AMP,
then we propose to offset the difference
between 23.1 percent of AMP and AMP
minus best price.
• If the difference between AMP and
best price is greater than or equal to 23.1
percent of AMP, then we propose to not
take any offset amount.
For single source or innovator
multiple source drugs that are blood
clotting factors and drugs approved by
the FDA exclusively for pediatric
indications that are subject to a rebate
percentage of 17.1 percent of AMP:
• If the difference between AMP and
best price is less than or equal to 15.1
percent of AMP, then we propose to
offset the full 2 percent of AMP (the
difference between 17.1 percent of AMP
and 15.1 percent of AMP).
• If the difference between AMP and
best price is greater than 15.1 percent of
AMP but less than 17.1 percent of AMP,
then we propose to offset the difference
between 17.1 percent of AMP and AMP
minus best price.
• If the difference between AMP and
best price is greater than or equal to 17.1
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percent of AMP, then we propose to not
take any offset amount.
In the September 28, 2010 State
Medicaid Director (SMD) letter, #10–
019, we stated that for a drug that is a
line extension of a brand name drug that
is an oral solid dosage form, we planned
to apply the same offset calculation as
described above to the basic rebate.
Further, we planned to offset only the
difference in the additional rebate of the
reformulated drug based on the
calculation methodology of the
additional rebate for the drug preceding
the requirements of the Affordable Care
Act and the calculation of rebates for the
reformulated drug, if greater, in
accordance with the Affordable Care
Act. If there is no difference in the
additional rebate amount in accordance
with the Affordable Care Act, then we
do not plan to take any offset amount.
(A copy of the SMD letter can be found
at https://www.cms.gov/smdl/
downloads/SMD10019.pdf.)
However, after further review of the
offset provisions in section 2501 of the
Affordable Care Act, we have decided to
reconsider our instructions regarding
the calculation of the offset provisions
for line extension drugs to reflect the
difference between the URA for the drug
calculated based on the applicable
rebate percentage in section 1927 of the
Act prior to the Affordable Care Act and
the calculation of the URA for the line
extension drug, if greater, in accordance
with the Affordable Care Act. If there is
no difference between the URA for the
line extension drug based on the
Affordable Care Act and URA
calculation based on the applicable
rebate percentage in section 1927 prior
to the Affordable Care Act, then we do
not plan to take any offset amount. If
there is a difference then we will offset
the amount of that difference.
For noninnovator multiple source
drugs, we plan to offset an amount equal
to 2 percent of the AMP (the difference
between 13 percent of AMP and 11
percent of AMP) since these drugs are
unaffected by best price.
For covered outpatient drugs that are
dispensed to Medicaid MCO enrollees,
we propose to offset the non-Federal
share limited to the difference between
the rebate percentages in effect outside
of the MCO context on December 31,
2009 and the rebate percentages in effect
on January 1, 2010, as described
previously. Specifically, we planned for
States to retain the non-Federal share of
rebates below the 15.1 percent rebate
percentage for single source or
innovator multiple source drugs and 11
percent for noninnovator multiple
source drugs as in effect on December
31, 2009. In addition, we planned for
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States to retain the non-Federal share of
the amount above the revised minimum
rebates for brand name drugs.
Additionally, we do not plan to offset
the non-Federal share of any
supplemental rebate States may receive
above the increased Federal rebate
percentages.
To ensure efficiency and uniformity,
CMS plans to calculate a unit rebate
offset amount (UROA) that will, on a
quarterly basis, identify the amount of
offset per unit of drug at the 9-digit NDC
for States. The UROA will be provided
to States in a manner similar to how
States currently receive the URA every
quarter. States will then match the
UROA with the number of units of the
drug for which they receive payment
from a manufacturer to determine the
Quarterly Rebate Offset amount (QROA)
for that drug. All QROAs for all drugs
of all manufacturers will then be added
together to determine the Total QROA.
This then will be the amount that States
offset on the Quarterly Expenditure
reports. Adjustments to the UROA will
be treated as prior period adjustments
(PPAs) and will be reported to the States
the same way that URA PPAs are
currently transmitted.
Please note that the offset provision
would also apply to the Territories that
participate in the MDR program.
H. Requirements for Manufacturers
(§ 447.510)
In the Medicaid Program; Withdrawal
of Determination of Average
Manufacturer Price, Multiple Source
Drug Definition, and Upper Limits for
Multiple Source Drugs final rule
published in the November 15, 2010
Federal Register (75 FR 69591), we
made conforming amendments to delete
references to § 447.504 ‘‘Determination
of AMP’’ from § 447.510 ‘‘Requirements
for Manufacturers’’. In this proposed
rule, we are proposing conforming
regulatory amendments to add
regulatory text to § 447.510.
Specifically, those references that will
be added are at § 447.510(a)(1),
§ 447.510(c)(2)(i), and § 447.510(d)(2).
We are also proposing a conforming
amendment to § 447.510(g) to clarify
that the electronic format in which the
product and pricing data is submitted to
CMS must be submitted in a format
designated by CMS.
1. Failure to Report Quarterly AMP
(§ 447.510(a)(5))
In an effort to better ensure timely
quarterly AMP reporting at the end of
each rebate period, in accordance with
the statute at section 1927(b), a
manufacturer that fails to submit and
certify a quarterly AMP to CMS for a
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product by the 30th day after the end of
each quarter will be reported to the OIG.
We propose, in accordance with the
statutory requirements at section
1927(b)(3)(C)(i), that manufacturer will
be subject to a civil monetary penalty
for each product not reported on the
thirty-first day. Please see the OIG’s
Special Advisory Bulletin issued in
September 2010 regarding reporting
AMP timely, https://oig.hhs.gov/fraud/
docs/alertsandbulletins/2010/
SpAdvBulletin_AMP_ASP.pdf.
Additionally, we are considering
adding regulatory guidance on
suspension and termination for
manufacturers that do not report
quarterly AMP on a timely basis or are
otherwise out of compliance with rebate
requirements. We have considered a
number of formal and informal
administrative procedures similar to
those set forth in 42 CFR part 498 or 42
CFR 430.18, which would permit an
opportunity for reconsideration and
administrative appeals. We are
considering the appropriate terms and
procedures for suspension and
termination and, therefore, we invite
comments from the public.
2. Reporting Revised Monthly and
Quarterly AMP, Best Price, Customary
Prompt Pay Discounts, or Nominal
Prices (§ 447.510(b))
In this proposed rule, we propose to
revise the 12-quarter rule filing
limitation currently in place for
manufacturers to report revisions to
their quarterly AMP, best price,
customary prompt pay discounts, or
nominal prices. We initially established
a time limit of 12 quarters for
manufacturers to report revisions to
their quarterly pricing data. The 12quarter period established a time limit
within which manufacturers are
responsible for reporting revisions to
pricing data in part to decrease
associated administrative burdens on
manufacturers and States. Despite the
effective date of January 1, 2004 for the
12-quarter rule, we are still receiving
requests from manufacturers to make
revisions to the pricing data that fall
outside of the 12-quarter period.
Therefore, we propose that any request
from manufacturers submitted to CMS
to revise the monthly and quarterly
AMP, best price, customary prompt pay
discounts, or nominal prices that are
outside of the 12-quarter filing deadline
will be considered, only if it falls within
one of the following categories:
• The change is a result of the drug
category change or a market date
change.
• The change is an initial submission
for a product.
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• The change is due to termination of
a manufacturer from the MDR Program
for failure to submit pricing data and
must submit pricing data to reenter the
program.
• The change is due to a technical
correction (such as a keying error), that
is, not based on any changes in sales
transactions or pricing adjustments from
such transactions.
• The change is to address specific
underpayments to States, or potential
liability regarding those underpayments,
as required by CMS, applicable law or
regulations, or an OIG or DOJ
investigation.
We propose that § 447.510(b)(1) be
revised to clarify that a manufacturer is
required to report to CMS any revisions
to correct AMP, best price, customary
prompt pay discounts, or nominal
prices for a period not to exceed 12quarters from the quarter in which the
data were due. The 12-quarter limit is
meant to be a specific time limit for any
revision. Any revision request, except
for those falling within the exceptions
noted above, must be made within this
12-quarter time period. We propose to
add to § 447.510(b) that any revision
request that falls outside of the 12quarter time limit will not be considered
by CMS, unless it falls under the above
five criteria. We also propose to revise
timeframe for reporting revised monthly
AMP in § 447.510(d)(3) to clarify that
the only exceptions to the 36-month
limit for reporting monthly AMP would
be considered by CMS if it falls under
the same five criteria.
We are contemplating whether to
allow manufacturers that have revisions
to their pricing data beyond the 12quarter limit that meet the five criteria
above to revise their pricing data on a
retroactive basis: (1) Without any time
limits back to beginning of the program,
1991, or (2) with some time limits
outside of the 12-quarter restrictions. In
other words, we are considering
whether we should impose a timeframe
as to how far back we should allow
manufacturers to make this revision. We
invite public comments on suggestions
as to how far back we should allow
manufacturers to make revisions to their
pricing data if their request meets one
of the above five exceptions.
Additionally, to ensure that any
revision to pricing data is consistent
across the monthly and the quarterly
AMP data, if a revision request is
submitted for monthly AMP and AMP
units, then a revision request is also
required for quarterly AMP. In addition,
if a revision request is submitted for
quarterly AMP, then a revision request
is also required for monthly AMP and
AMP units.
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5343
3. Recalculations Including Good Cause
Separate from pricing data revision
request, we are proposing an option for
manufacturers to submit a recalculation
request outside of the 12-quarter time
limit based on good cause, which would
permit a manufacturer to revise its
methodology for calculating AMP and
best price. Our regulations at
§ 447.510(b) specify that manufacturers
have a 12-quarter time limit to report
price revisions. Manufacturers are
responsible for reporting any revisions
to AMP or best price within the 12
quarter limit, which begins with the
quarter in which the data was due. As
is the case with all pricing data
submitted under the MDR program, if a
subsequent review of the manufacturers’
pricing data by CMS, the OIG, or
another authorized government agency
determines or reveals that adjustments
or revisions are necessary irrespective of
the quarter, the manufacturer is
responsible under the statute to comply
with that determination. Based on
questions from manufacturers often as a
result of False Claims Act concerns, we
have considered allowing manufacturers
to submit recalculations of AMP and
best price outside of the twelve quarter
time limit due to good cause. We plan
to establish a good cause option to allow
manufacturers to submit their pricing
data due to a recalculation of the
methodology for calculating AMP and
best price outside of the 12-quarter time
limit to address underpayments and
potential liability regarding those
underpayments that may extend outside
of that 12-quarter period. We are
considering proposing a ‘‘good cause’’
option to extend the time limit for filing
a recalculation request, similar to that
used in Medicare. We invite comments
from the public on this option.
4. Base Date AMP (§ 447.510(c)(1) to
§ 447.510 (c)(4))
In the 2007 AMP final rule, we
allowed manufacturers to report a
revised base date AMP to CMS within
the first four full calendar quarters
following the publication date of the
final rule. To differentiate between the
timeframe when manufacturers were
allowed to report revised base date
AMPs in accordance with the DRAbased definition of AMP and the
timeframe described below, we propose
to revise § 447.510(c)(1) and
§ 447.510(c)(2) by inserting ‘‘DRA’’
before base date AMP where it occurs.
We also propose to remove the notation
‘‘[OFR: insert publication date of the
final rule]’’ and replace it with ‘‘July 17,
2007’’ in § 447.510(c)(1).
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The Affordable Care Act significantly
revised the definition of AMP to mean
for a covered outpatient drug (including
those sold under section 505(c) of the
FFDCA), the average price paid to the
manufacturer for the drug in the United
States by wholesalers for drugs
distributed to retail community
pharmacies and retail community
pharmacies that purchase drugs directly
from the manufacturer. To reflect the
changes to AMP as set forth in the
Affordable Care Act, we propose to
allow manufacturers to recalculate base
AMP in accordance with the definition
of AMP in § 447.504 of this subpart.
Base AMP is used in the calculation of
the additional rebate described in
section 1927(c)(2) of the Act. This
additional rebate is defined as the
difference between the current quarterly
AMP reported to CMS and the base date
AMP trended forward using the CPI–U.
We propose this revision so that the
additional rebate would not increase
solely due to the changes in the
definition of AMP. We propose giving
manufacturers the option to report a
recalculated base date AMP based on
the Affordable Care Act. We propose to
allow manufacturers the option to
decide whether they will recalculate
and report to CMS an Affordable Care
Act base date AMP in light of the
revised definition of AMP or continue to
use their existing base AMP. We
propose to give manufacturers this
option because we are aware that some
manufacturers may not have the actual
data needed to recalculate their base
date AMP or may find the
administrative burden to be more costly
than the savings gained. We propose to
provide manufacturers with the option
to report the recalculated Affordable
Care Act base date AMP for a period of
four full calendar quarters beginning
with the first full quarter after the
publication of the final rule.
5. Calculation of Monthly AMP
(§ 447.510(d)(2))
Section 1927(e)(5) of the Act specifies
that the Secretary is to implement a
smoothing process for AMP, which shall
be similar to the smoothing process
used in determining the average sales
price (ASP) of a drug or biological under
Medicare Part B. The Medicare Part B
regulations at § 414.804(a)(3) specify
that the ASP methodology for
smoothing lagged price concessions
requires that manufacturers calculate
the total lagged price concessions for the
previous 12-month period and convert
the dollar amount to a percentage of
sales over that same 12-month period.
This percentage is then applied to the
current quarter’s sales to estimate the
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lagged price concessions for that
quarter.
Therefore, we are proposing
manufacturers would be required to use
a 12-month rolling percentage to
estimate the value of lagged price
concessions in their calculations of the
monthly and quarterly AMPs.
Specifically, we are proposing that a
manufacturer’s monthly AMP is to be
calculated based on the weighted
average of the prices for all the
manufacturer’s package sizes of each
covered outpatient drug sold by the
manufacturer during a month. It is
calculated as net sales divided by
number of units of the drug sold,
excluding goods or any other items
specifically excluded in the statute or
regulations. The drug unit is the lowest
identifiable amount (for example, tablet
or capsule for solid dosage forms,
milliliter for liquid forms, gram for
ointments or creams) as reported by the
manufacturer.
Monthly AMP should be calculated
consistent with this methodology, based
on the best data available to the
manufacturer at the time of submission.
In calculating monthly AMP, a
manufacturer should estimate the
impact of its lagged price concessions
using a 12-month rolling percentage to
estimate the value of those discounts.
Following is an example of how
manufacturers would calculate the
monthly AMP by using a 12-month
rolling percentage to estimate the lagged
price concessions:
• Total lagged price concessions over
the most recent 12-month period =
$150,000.
• Total sales subject to AMP reporting
for the most recent 12-month period =
$600,000.
• $150,000/$600,000 = 0.25 (or 25
percent).
• The result (25 percent) is the
percentage manufacturers subtract from
their total sales for that month to
estimate lagged price concessions for
that month.
• Current month sales = $50,000.
• $50,000 × 25 percent (estimated
percentage of lagged price concessions)
= $12,500 estimated lagged price
concessions for the current month.
• $50,000¥$12,500 = $37,500 (net
total sales after subtracting estimated
lagged price concessions for the current
month).
• Units sold during current month =
10,000 units.
• $37,500/10,000 units = $3.75 AMP.
The only differences between the
proposed AMP smoothing process
methodology and the ASP smoothing
process methodology is that the ASP
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smoothing process is applied on a
quarterly basis whereas the AMP
smoothing process will be applied on a
monthly basis and by statutory
definition, the ASP calculation includes
more sales than in the AMP calculation.
We believe this process will result in
more stable AMP calculations on a
month to month basis, because the
estimated lagged price concessions will
increase as sales increase, and likewise
as sales decrease. In addition, it meets
the statutory requirement that the AMP
smoothing process be similar to the
smoothing process used in determining
the ASP.
6. Manufacturer Reported AMP Units
(§ 447.510(d)(6))
Section 2503(b) of the Affordable Care
Act requires manufacturers to submit to
CMS on a monthly basis the total
number of units that are used to
calculate the monthly AMP for each
covered outpatient drug no later than 30
days after the last day of each prior
month. We propose that the
manufacturer report monthly AMP units
as the number of units that are used to
calculate the monthly AMP to be
reported to CMS. Additionally, in order
to be consistent and to implement the
rebate and FUL provisions, the monthly
units should be of the unit type that is
reported as part of the product data and
the unit type used in the quarterly and
monthly AMP calculation for each NDC
to ensure consistency in the calculation
as well as the reporting of the monthly
and quarterly AMP and the AMP units.
7. Failure To Report Monthly AMP and
AMP Units (§ 447.510(d)(7))
Currently a manufacturer must submit
a monthly AMP to CMS no later than 30
days after the last day of the prior
month. Under the Affordable Care Act,
a manufacturer will be required to
submit the total number of units that are
used to calculate the monthly AMP no
later than 30 days after the last day of
the prior month. To ensure that each
manufacturer is reporting timely to
CMS, a manufacturer that fails to submit
and certify monthly AMP and the AMP
Units for a product to CMS by the 30th
day after the end of each month will be
reported to the OIG. We propose, in
accordance with the statutory
requirements at section 1927(b)(3)(C)(i),
that the manufacturer will be subject to
civil monetary penalty for each product
not reported on the thirty-first day.
Please see the OIG’s Special Advisory
Bulletin issued in September 2010
regarding reporting AMP timely, https://
oig.hhs.gov/fraud/docs/alertsand
bulletins/2010/SpAdvBulletin_
AMP_ASP.pdf.
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Additionally, we are considering
adding regulatory guidance on
suspension and termination for
manufacturers that do not report
monthly AMP and AMP Units on a
timely basis. As noted previously, we
have considered a number of formal and
informal administrative procedures
similar to those set forth in 42 CFR part
498 or 42 CFR 430.18. Therefore, we
invite comments on these procedures
from the public.
I. Requirements for States (§ 447.511)
Section 1927(b)(2)(A) of the Act
specifies that States are required to
report to each manufacturer, not later
than 60 days after the end of each rebate
period, information on the total number
of units of each dosage form and
strength and package size of each
covered outpatient drug dispensed, and
to promptly transmit a copy of such
report to the Secretary. Effective March
23, 2010, the Affordable Care Act
amended section 1927(b)(2)(A) of the
Act to require that the State include in
those reports, the information reported
by each Medicaid MCO.
We propose a new § 447.511 to clarify
the requirements for States. In
§ 447.511(a), we propose to list the data
that the State must provide to
participating drug manufacturers. We
further propose that States must submit
this data within 60 days after the end of
each quarter.
In § 447.511(b), we propose that the
States report drug utilization data as
defined in § 447.511(a) to CMS on a
quarterly basis.
In § 447.511(c), we propose that a
State that has participating Medicaid
MCOs, which includes covered
outpatient drugs in its capitated
arrangements with the MCOs, report
data listed in §§ 447.511(a) for covered
outpatient drugs dispensed to
individuals eligible for medical
assistance who are enrolled with the
MCO and for which the MCO is
responsible for coverage of such drugs
under section 1903 of the Act. We
further propose that this data be
identified separately from the data
pertaining to drugs that the State
reimburses on a fee-for-service basis.
With the proposed change in the
definition of ‘‘State’’ to include the
territories, we recognize that these
requirements would ultimately be
applicable to the territories. We are also
aware that it will take the territories
time in order to upgrade their computer
systems and come into compliance with
the MDR program requirements.
Therefore, we are proposing that the
requirements discussed in this section
would not be effective for the territories
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until one year after the first day of the
first full quarter after the publication of
the final rule.
J. Drugs: Aggregate Upper Limits of
Payment (§ 447.512)
In the ‘‘Medicaid Program;
Withdrawal of Determination of Average
Manufacturer Price, Multiple Source
Drug Definition, and Upper Limits for
Multiple Source Drugs’’ final rule that
we published in the November 15, 2010
Federal Register (75 FR 69591), we
made conforming amendments to
remove references to § 447.514 ‘‘Upper
limits for multiple source drugs’’ from
§ 447.512 ‘‘Drugs: Aggregate upper
limits of payment’’. We are proposing
regulatory amendments to add those
references back into the regulatory text
of § 447.512.
Currently, § 447.512(b) establishes
guidelines for payment levels that the
agency has determined to be
appropriate. At § 447.512(b)(1), we
propose to replace the term ‘‘EAC’’ with
the term ‘‘AAC’’ as we have previously
proposed to replace ‘‘estimated
acquisition cost’’ with ‘‘actual
acquisition cost’’. Further, we propose
to add the word ‘‘professional’’ to the
description of dispensing fee in this
section.
We are proposing these changes in
terminology in part because we believe
that using the AAC in determining the
drug ingredient component of the
reimbursement formula will be more
reflective of actual prices paid, as
opposed to unreliable published
compendia pricing.
Currently, States usually determine
EAC for single source drugs and drugs
other than multiple source drugs for
which either a specific Federal Upper
Limit (FUL) or State maximum
allowable cost (SMAC) has been
established by paying the lower of:
• A percentage decrease applied to a
commercially published reference price
such as average wholesale price (AWP)
or a percentage increase to wholesale
acquisition cost (WAC), or
• The pharmacy’s usual and
customary charge to the public.
Using a commercially published
reference price as the basis for Medicaid
pharmacy reimbursement has been
problematic for both the States and the
Federal government. Several reports
issued by the OIG have shown that AWP
is often a significantly inflated price,
and not necessarily reflective of a
pharmacy’s actual purchase price for a
drug. (OIG Audit reports—A–06–00–
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5345
00023, A–06–01–00053, A–06–02–
00041).3
Further, AWP raises other concerns
when used as a basis for payment, as
evidenced by litigation relating to its
use. See New England Carpenters
Health Benefits Fund v. First DataBank,
602 F.Supp.2d 277, 279 (D.Mass. 2009)
(in which the Court stated that ‘‘despite
its name, AWP is not an average of
prices charged by wholesalers to
providers (such as pharmacies and
doctors) and it does not necessarily bear
any relationship to any prices actually
charged in the marketplace.’’)
At this time the commercial
compendium, First DataBank, Inc. has
reported that it is scheduled to cease the
publication of AWP as of September
2011. While other drug pricing
compendia may publish both AWPs and
WACs, we have concerns, based on the
previously referenced OIG reports, that
these prices will not be based on actual
costs or reflect actual prices that
providers pay for these drugs.
Certain States, in order to calculate
more accurate payment rates, have
already begun to base some of their drug
prices on survey data based on
pharmacy invoice prices.4 We believe
that these surveys of pharmacy
providers will assist States in
determining valid reference prices from
which to develop drug ingredient
reimbursement. Section 447.518 of this
proposed regulation provides further
discussion about how States can
develop and justify their AAC.
K. Upper Limits for Multiple Source
Drugs (§ 447.514)
Section 2503(a) of the Affordable Care
Act revises the definition of ‘‘multiple
source drug’’ established in section
1927(k)(7)(A)(i) of the Act to mean, for
a rebate period, a covered outpatient
drug for which there is at least one other
drug product which is rated as
therapeutically equivalent (under the
FDA’s most recent publication of the
Orange Book), is pharmaceutically and
bioequivalent, as determined by the
FDA; and is sold or marketed in the
United States during the period. We
propose this definition be included in
§ 447.502 ‘‘Definitions.’’ In accordance
with these statutory requirements, we
also propose that at least two
3 https://oig.hhs.gov/oas/reports/region6/
60000023.htm. https://oig.hhs.gov/oas/reports/
region6/60100053.htm. https://oig.hhs.gov/oas/
reports/region6/60200041.htm.
4 Alabama-10–008, effective date September 22,
2010 (Alabama AAC Survey information available
at https://al.mslc.com/Faqs.aspx) and Oregon-10–13,
effective date January 1, 2011 (Oregon AAC Survey
information available at https://or.mslc.com/
AACList.aspx or https://or.mslc.com/uploadedFiles/
Oregon/OR%20Communications%20Plan.pdf).
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therapeutically equivalent (‘‘A’’ rated)
formulations must be listed in the FDA’s
Orange Book in order for the drug to be
defined as a multiple source drug.
Also, section 2503(a) of the Affordable
Care Act revised section 1927(e) of the
Act to change the requirement for a FUL
to be established for each multiple
source drug for which the FDA has rated
two or more products therapeutically
and pharmaceutically equivalent, to
three or more products, regardless of
other formulations. In accordance with
this statutory requirement, we are
proposing in § 447.514(a)(1) that a FUL
be established for each multiple source
drug for which the FDA has rated three
or more products therapeutically and
pharmaceutically equivalent. We
propose that the FUL will be calculated,
in accordance with section 1927(e)(4) of
the Act, using only therapeutically and
pharmaceutically equivalent drugs. Any
other formulations of the drug listed in
the FDA Orange Book that are not
therapeutically and pharmaceutically
equivalent to the reference listed drug,
for example, ‘‘B’’ rated drugs, will not
be used in the calculation of the FUL.
For purposes of applying this rule, we
consider drug products to be
therapeutically equivalent if they are
identified as A-rated in the current
edition of FDA’s Orange book. Per the
FDA’s Orange Book, drug products are
considered to be therapeutic equivalents
only if they are pharmaceutical
equivalents and if they can be expected
to have the same clinical effect and
safety profile when administered to
patients under the conditions specified
in the labeling. Drug products are
considered pharmaceutical equivalents
if they contain the same active
ingredient(s), are of the same dosage
form, route of administration and are
identical in strength or concentration. In
general, with limitations that may apply
to particular patients, the FDA believes
that products classified as
therapeutically equivalent can be
substituted with the full expectation
that the substituted product will
produce the same clinical effect and
safety profile as the prescribed product.5
‘‘B’’ rated drugs are drugs that FDA
does not consider therapeutically
equivalent to other pharmaceutically
equivalent products. Per the FDA
Orange Book, drug products designated
with a ‘‘B’’ code fall under one of three
main policies:
• The drug products contain active
ingredients or are manufactured in
dosage forms that have been identified
by FDA as having documented
5 https://www.fda.gov/downloads/Drugs/
DevelopmentApprovalProcess/UCM071436.pdf.
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bioequivalence problems or a significant
potential for such problems and for
which no adequate studies
demonstrating bioequivalence have
been submitted to FDA; or
• The quality standards are
inadequate or the FDA has an
insufficient basis to determine
therapeutic equivalence; or
• The drug products are under
regulatory review.6
Therefore, we propose that any
alternative formulations not
therapeutically equivalent to the
reference listed product in FDA’s
Orange Book will not be subject to the
FUL. We propose that the FUL will only
be applied to those drugs that are
therapeutically equivalent to the
reference listed drug, that is, ‘‘A’’ rated
drugs that are pharmaceutically
equivalent to the reference listed drug;
however, we are inviting comments on
the issue of the FUL being applied to
drugs that are not therapeutically
equivalent to the reference listed drug.
In accordance with section 2503(a) of
the Affordable Care Act, we are
proposing that the FUL will be
calculated as no less than 175 percent
of the weighted average of the most
recently reported monthly AMPs for
pharmaceutically and therapeutically
equivalent multiple source drug
products. We plan to determine the
weighted average on the basis of
manufacturer submitted utilization of
the most recently reported monthly
AMPs for all therapeutically equivalent
innovator (I) and non-innovator (N)
multiple source drug products that, by
definition elsewhere in this proposed
rule, are available for purchase by retail
community pharmacies on a nationwide
basis.
In computing the FUL, we would use
the monthly AMP and the monthly
utilization data submitted by the
manufacturer. Using the monthly AMP
data will provide for the timeliest
pricing data and allow revisions to the
FUL list on a monthly basis. In addition,
the statute requires us to use the
recently reported monthly AMPs to
calculate the FUL. It will also permit us
to update the FULs on a timely basis in
accordance with the provisions of
section 1927(f)(1)(B) of the Act.
The currently reported AMP is based
on the nine-digit NDC and is specific to
the product code, combining all package
sizes of the drug into the same
computation of AMP. Inasmuch as this
computation is used to determine the
AMP that is currently reported by
manufacturers, we propose to use this
AMP for the FUL calculation.
6 Id.,
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Section 2503(a) of the Affordable Care
Act redefines AMP, effective October 1,
2010. Due to this change in the
determination of AMP, and the
requirement that the monthly AMP
under this calculation first be reported
for October 2010 data, CMS received
these revised monthly AMPs and
utilization data beginning in November
2010. While the law required
manufacturers to change their
calculation of AMP effective October 1,
2010, we did not issue FULs based on
this data. Further, we decided to not use
data submitted before December 15,
2010 to calculate the FULs, as there was
some concern within the industry that
manufacturers may have based their
AMP calculation on prior AMP
regulations that were in effect until
December 15, 2010.
In the interim, CMS has been
reviewing monthly pricing data
submitted and continues to work
towards increasing labeler compliance
of reporting data timely. When
establishing a FUL, we propose to
disregard the AMP of an NDC which has
been terminated. We note that we have
published four sets of draft FUL files on
our Web site. We invited comments
from stakeholders and we have posted
several of those comments and our
responses to those comments at https://
www.medicaid.gov/Medicaid-CHIPProgram-Information/By-Topics/
Benefits/Prescription-Drugs/FederalUpper-Limits-.html.
In calculating the FUL, we propose to
eliminate covered outpatient drugs
designated as single source (S) drugs
from the FUL calculation because the
FUL in the statute, is based on the
weighted average of AMPs for multiple
source drugs, and, single source drugs
are, by definition, not multiple source
drugs, and should be reported according
to the statute. We note here that there
should be no instances of an (S) drug in
a FUL group, as labelers should be
reporting drugs that are therapeutically
equivalent drug products as (I) drugs,
and statutory provisions require us to
use only multiple source drugs when
calculating the FUL. We propose to rely
on manufacturer submitted data in
determining if a drug product is used in
the calculation of the FUL, that is, if it
is an (I) or an (N) drug. CMS has issued
guidance previously, and more recently,
requested drug labelers to review the
drug category for which their NDC is
reported, and if they determine that an
incorrect drug category has been
reported to CMS for a product, they are
required to request a drug category
change for the product. We have also
recently reminded labelers that
changing a drug category from (S) to (I)
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has no prior approval requirement from
CMS, and that these changes can and
should be made timely by the labeler via
the Drug Data Reporting for Medicaid
system. See Manufacturer Releases No.
80 and No. 82 (issued on January 5,
2010 and November 1, 2010,
respectively). Accordingly, we propose
to include pharmaceutically and
therapeutically equivalent innovator
multiple source and non-innovator
multiple source drugs when calculating
the weighted average of monthly AMPs.
In light of our experience with the
implementation of section 1927 of the
Act, we believe that when a drug
product has at least one other FDAapproved, pharmaceutically and
therapeutically equivalent drug product,
the drug is generally sold or marketed
on a nationwide basis. Further, we
believe that when a drug product has at
least two FDA-approved,
pharmaceutically and therapeutically
equivalent drug products, that all retail
community pharmacies would be able
to purchase at least one of the drug
products through a pharmaceutical
market channel of distribution,
including, but not limited to, a national,
regional, or specialty drug wholesaler,
chain warehouse, group purchasing
organization, or directly from the drug
manufacturer. We do not believe it is
necessary that each retail community
pharmacy have the ability to purchase
every supplier’s pharmaceutically and
therapeutically equivalent drug in order
for the Secretary to calculate the FUL for
pharmaceutically and therapeutically
equivalent multiple source drug
products, provided the retail
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community pharmacy is able to
purchase at least one of the drug
products. We invite comments on the
issue of national availability in the
context of the FUL requirements and
request comments regarding specific
instances where such drug products are
not available for purchase by retail
community pharmacies on a nationwide
basis. Further, as noted previously, we
will not be using the AMP of a
terminated NDC to set the FUL
beginning with the first day of the
month after the termination date
reported by the manufacturer to CMS,
and a weighted average, using the
monthly AMP unit data, will be used to
calculate the FUL.
We further propose to establish the
upper limit reimbursement at 175
percent of the weighted average of
monthly AMPs in the aggregate.
We analyzed the FUL and determined
that the weighted AMP multiplied by
175 percent including (I) and (N) drugs
would be an adequate reimbursement
methodology, per the below chart that
shows the analysis of the fiscal year
2009 estimated aggregate expenditures,
comparing reimbursement using the
DRA AMP-based FUL methodology to
the pre-DRA FUL methodology,
weighted AMP FUL, weighted AMP
multiplied by 175 percent, and
Indiana’s State Maximum Allowable
Cost (IN’s SMAC). Utilization data
provided to CMS by States were used to
calculate the total number of units
reimbursed for each drug group and was
multiplied by the DRA AMP-based FUL,
the pre-DRA FUL, the weighted AMP
FUL, the weighted AMP multiplied by
PO 00000
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5347
175 percent FUL, and IN’s SMAC to get
the aggregate limit for each drug group
based on each formula used to calculate
the FUL. We chose IN’s SMAC as one
of the formulas in our comparative
analysis because IN’s SMAC, in
accordance with its State plan, is
developed by using pharmacy invoices,
and is equal to the average AAC per
drug adjusted by a multiplier of at least
1.0. IN’s Office of Medicaid Policy and
Planning reviews the SMAC rates on an
ongoing basis, and adjusts the rates as
necessary to reflect prevailing market
conditions and ensure reasonable access
by providers to drugs at or below the
applicable SMAC rate. Currently, IN
adjusts their average AAC using a
multiplier of 1.2. There are
approximately 550 drug groups reflected
in this estimated analysis. Because
utilization data are reported on a
quarterly basis while the DRA AMPbased FUL is generated on a monthly
basis, the estimated aggregate limit is
calculated for each month using the
quarterly utilization data averaged out
by the 3 months. This calculation was
done for all four quarters of fiscal year
2009, which was then aggregated to get
the fiscal year 2009 estimated aggregate
expenditure for each FUL formula. Each
bar represents the aggregate expenditure
while the percentage amount represents
the comparison to the DRA AMP-based
FUL.
The estimated aggregate is calculated
with the availability of at least three
therapeutically equivalent drug
products.
BILLING CODE 4120–01–P
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In a recent report issued by the
Government Accountability Office
(GAO) ‘‘Medicaid Outpatient
Prescription Drugs: Estimated Changes
to Federal Upper Limits Using the
Formula under the Patient Protection
and Affordable Care Act’’ (GAO–11–
141R), the GAO found that Affordable
Care Act FULs were higher than the
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undiscounted average retail pharmacy
acquisition costs for 34 of the 40 drugs
in the sample and was 35 percent higher
than the sum total of the undiscounted
pharmacy acquisition costs for these
drugs, which would have also lowered
the Medicaid expenditures on these
drugs by 60 percent.
Furthermore, the GAO stated that the
Affordable Care Act FULs could further
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exceed the retail pharmacy acquisition
costs if the GAO was to take into
consideration factors that were not used
in the analysis of this report. The GAO
stated that the acquisition cost data the
GAO used do not include rebates paid
by manufacturers to retail pharmacies. If
included, any applicable rebates would
have reduced the average retail
acquisition costs for the drugs in the
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sample; thus, the Affordable Care Act
FULs would exceed the retail pharmacy
acquisition costs by more than 35
percent. Additionally, if the Affordable
Care Act FULs were to be calculated
using the new AMPs based on the
revised definition under the Affordable
Care Act, then the Affordable Care Act
FULs would have exceeded the retail
pharmacy acquisition costs by even
greater than 35 percent.
Therefore, based in part on the
findings from the GAO report, we
believe that calculating the Affordable
Care Act FULs at weighted AMP times
175 percent would be a more than
adequate reimbursement to the
pharmacies.
The Affordable Care Act’s revisions to
section 1927(e)(5) of the Act allow but
do not require the Secretary to calculate
the FUL above the 175 percent of the
weighted average of AMPs. Based on the
data described above, we have decided
to calculate the FUL at 175 percent.
Using any percentage greater than 175
percent would further inflate the
aggregate expenditures depicted on our
chart. As provided in the chart above,
calculating the FUL as 175 percent of
the weighted AMP, including multiple
source drugs, that is, I and N drugs,
yields a reimbursement that is just
slightly higher than Indiana’s SMAC
which is based on actual pharmacy
acquisition data and is consistent with
the GAO’s findings that these levels are
generally in excess of the actual
acquisition cost of the drug. Because it
is virtually impossible to price each
drug at its actual acquisition cost to
each pharmacy and reflect the changes
in the marketplace at the same time they
occur, the upper limit reimbursement
continues to be established in the
aggregate. States maintain their right to
adjust reimbursement on a drug by drug
basis to the extent that the State’s
reimbursement remains under the
aggregate upper limit.
Thus, using a factor of 175 percent of
weighted monthly AMPs should yield
adequate reimbursement for pharmacy
providers, while achieving cost savings
for the Medicaid program compared to
pre-DRA FULs.
L. FULs Smoothing Process
As discussed previously, section
2503(a) of the Affordable Care Act
amended the FUL provision at section
1927(e)(5) of the Act to specify that the
Secretary shall implement a smoothing
process for AMPs which shall be similar
to the smoothing process used in
determining the ASP of a drug or
biological under Medicare Part B. In
order to ensure that the smoothing
process being utilized by manufacturers
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is uniform and consistent with statutory
requirements, as was discussed in
Manufacturer Release #83, a
manufacturer should estimate the
impact of its lagged price concessions
using a 12-month rolling percentage to
estimate the value of those discounts.
This guidance is restated in the
preamble language of this proposed rule
and would be codified in proposed
regulatory text at § 447.510(d)(2).
We also considered whether to
implement a further smoothing process
applicable to the FUL calculation. While
the statute requires us to use the most
recently reported monthly AMPs to
calculate the FUL, it did not address
smoothing the FULs themselves.
However, after reviewing the first
months of the draft FULs, which we
posted on our Web site, we note that
there is some variability in the FULs
from one month to the next. Therefore,
we looked at various approaches for
smoothing the FULs, as follows. We
considered:
• Using the mean of the most recently
reported monthly AMPs over a specific
period of time; for example, three
months, to minimize the variability of
the monthly AMPs before weighting the
monthly AMPs and multiplying the
result by 175 percent to calculate the
FUL;
• Using the median of the most
recently reported monthly AMPs over a
specific period of time; for example,
three months, before weighting the
monthly AMPs and multiplying the
result by 175 percent to calculate the
FUL;
• Weighting the most recently
reported monthly AMPs over a specific
period of time; for example, three
months, to minimize the variability of
the monthly AMPs before weighting the
monthly AMPs and multiplying the
result by 175 percent to calculate the
FUL;
• After calculating the FUL as the
weighted average of monthly AMPs in a
FUL product group, calculate the mean
of the FULs for each product group over
a specific period of time; for example,
three months, to smooth the FUL if
there is variability in the calculated FUL
from month to month;
• Excluding outlier monthly weighted
AMPs that are less than a certain
percentage of the next highest monthly
AMP for therapeutically and
pharmaceutically equivalent products;
• Excluding a monthly AMP if the
percent change is greater than a certain
percentage when compared to the last
manufacturer reported and certified
monthly AMP;
• Increasing the calculated FUL by a
certain percentage if the FUL is less
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5349
than a certain percentage from the last
FUL;
• Calculating the FUL using only
monthly weighted AMPs within a FUL
Product Group that have a certain
percentage of the market share based on
the monthly AMP units reported to us
by drug manufacturers.
• Using the mean of the monthly
weighted average of AMPs for an entire
FUL Product Group over a specific
period of time; for example, three
months; and/or,
• Excluding monthly AMPs that are
higher or lower than the standard
deviation of the mean of all the monthly
AMPs in a specific FUL Product Group.
Smoothing the pricing data using one
of these methodologies would prevent
some month-to-month fluctuations in
the FULs. However, implementing any
of the smoothing methods would have
limitations. For example, it could
require that for the entire averaging
period, all manufacturers have timely
reported monthly AMP and AMP units
or that we look at alternatives to that.
Further, it would require us to look at
how to add newly available generic
drugs or other changes in circumstances
that affect these FULs. We are
concerned that this could skew a
resultant FUL so that it would be less
representative of the price at which the
pharmacy could purchase that drug. For
example, it could cause a FUL for a
particular FUL group to be lower than
if we use only one month of AMP data
in the calculation depending on the
reported and certified monthly AMP
and AMP units over the averaging
period. As such, it may not capture
price increases in a drug or reflect
changes in price caused by a shortage of
the drug. Conversely, it could overstate
the price of drugs where more
manufacturers are coming into the
marketplace and the price of the drug
was decreasing over time.
After careful consideration, we have
decided not to propose a specific
methodology to smooth the FULs at this
time. Because AMPs are based on prices
paid to manufacturers by wholesalers
for drugs distributed to retail
community pharmacies and by retail
community pharmacies that purchase
drugs directly from the manufacturer,
they are subject to some fluctuations
and variances in the generic drug
market, which may result in
fluctuations in the AMP-based FUL
from month to month. Furthermore,
these changes may be present even if we
decide to implement a smoothing
process over and above the smoothing
process that manufacturers are presently
using for AMP calculations. As
previously mentioned, price changes
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can occur as a result of product
shortages, manufacturing disruptions,
seasonal supply and demand, and
products with a short shelf life. We are
inviting comments on this issue,
including the benefit of such a process,
the options we considered, options we
have not considered, and whether a
smoothing process is necessary.
M. State Plan Requirements, Findings,
and Assurances (§ 447.518)
In the Medicaid Program; Withdrawal
of Determination of Average
Manufacturer Price, Multiple Source
Drug Definition, and Upper Limits for
Multiple Source Drugs final rule
published in the November 15, 2010
Federal Register (75 FR 69591), we
made conforming amendments which
deleted references to § 447.514 ‘‘Upper
limits for multiple source drugs’’ from
§ 447.518 ‘‘State plan requirements,
findings and assurances’’. We are
proposing conforming regulatory
amendments to those references and are
adding them in the regulatory text of
§ 447.518.
In addition, to conform with the
change from ‘‘estimated acquisition
cost’’ to ‘‘actual acquisition cost’’, we
propose in § 447.518(c) to require all
States to provide data to adequately
support proposed changes in
reimbursement using AAC. This
supporting data could include, but is
not limited to, a national survey, to
create a database of actual acquisition
costs that States may use as a basis for
determining State-specific rates.
Additionally, a State survey of retail
pharmacy providers or other reliable
data which reflects the pharmacy
provider’s price to acquire a drug could
be used as a basis to support proposed
changes in reimbursement. We believe
that surveying pharmacy providers for
acquisition costs or using other reliable
data, based on actual sales transactions,
as a base from which to develop an
appropriate ingredient cost
reimbursement is reasonable.
Alternatively, the use of an AMP, which
is based on actual sales data and
reported and certified by drug
manufacturers, could be considered as a
reimbursement metric. The State can
also determine the relationship of the
AMP to factors such as the wholesaler
markup, which covers the cost of
distribution and other service charges
by the wholesaler, to determine a
reasonable reimbursement that would
appropriately compensate pharmacies
for these costs.
We are inviting comments on the
practicality of requiring each State to
conduct a survey, the frequency of such
a survey, and how closely we would
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expect the State to conform to the
survey results in the reimbursement
rates they propose in their SPA,
including the use of acquisition cost
averaging, AMPs as a basis for
reimbursement, including the
application of an appropriate markup
factor or other methods of determining
the ingredient cost.
Although we considered various
alternatives for how AAC will apply in
the case of reimbursement for covered
outpatient drugs purchased under other
Federal drug programs such as the 340B
Drug Pricing Program and the Federal
Supply Schedule (FSS) we are not
proposing specific methodologies.
Through these programs, certain Federal
grantees and others can purchase drugs
at significant discounts, and these drugs
will then be reimbursed through the
State Medicaid program for Medicaid
beneficiaries. Under current HRSA
policy, participating covered entities are
permitted to dispense drugs purchased
outside of 340B authority for their
Medicaid patients, often referred to as
the ‘‘Medicaid carve out’’ option. In
accordance with section 340B(a)(5) of
the PHS Act and section 1927(a)(5)(C) of
the Act, a covered entity is not
permitted to seek Medicaid payment for
a drug that is subject to discounts under
the 340B Drug Pricing Program and a
Medicaid rebate in order to protect drug
manufacturers from paying a Medicaid
rebate on drugs that are already subject
to a Federal discount. This ‘‘duplicate
discount’’ prohibition in the Medicaid
statute only applies to drugs purchased
through the 340B Drug Pricing Program
and does not apply to drugs carved out
for Medicaid patients and billed to the
Medicaid program.
In a recent OIG report, ‘‘State
Medicaid Policies and Oversight
Activities Related to 340B–Purchased
Drugs’’, OEI–05–00321, the OIG
reported that many State Medicaid
agencies have written policies that
direct covered entities to bill at cost for
the ingredient cost of 340B purchased
drugs or relied on HRSA’s 1993
guidance directing covered entities to
bill States at AAC (although that
guidance is no longer in effect and was
superseded by subsequent HRSA
guidance directing covered entities to
refer to States’ policies). We believe that
paying 340B providers at cost for these
340B drugs would meet the AAC
requirements but seek further comments
on what other methodologies would
meet the AAC requirements.
IHS, tribal and urban Indian
organization pharmacies may purchase
drugs through the FSS or the 340B
program and are oftentimes paid the
Medicaid reimbursement rates
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established in State plans. In turn,
States are reimbursed at 100 percent
Federal medical assistance percentage
for services provided in IHS and tribal
pharmacies. While we have considered
alternatives for payment methodologies
for IHS, tribal and urban Indian
pharmacies, we are proposing no
specific methodologies and invite
public comment on Medicaid payment
levels for these facilities. In addition,
pursuant to E.O. 13175 and the HHS
Tribal Consultation Policy (December
2010), the CMS will consult with Tribal
officials prior to the formal
promulgation of this regulation.
We propose that States that do not
have specific methodologies develop
such methodologies for these providers
consistent with our proposed shift from
EAC to AAC. In addition, we propose to
add a new requirement at § 447.518(a)
that the State plan must describe the
agency’s payment methodology for
drugs dispensed by a covered entity
participating in the 340B Drug Pricing
Program or by a contract pharmacy
under contract with a participating
covered entity.
In addition, States would be required
to submit a SPA through the formal
review process, as well as comply with
all Federal requirements including
consultation with tribal governments
and IHS, tribal and urban Indian
programs pursuant to section 5006 of
the American Recovery and
Reinvestment Act of 2009 (Pub. L. 111–
5), when submitting a request to change
their professional dispensing fee. As is
true for the drug ingredient
reimbursement, we do not intend to
mandate a specific formula or
methodology which the States must use
to determine their dispensing fee,
however, as is consistent with current
policy, States would still be required to
substantiate how their dispensing fee
reimbursement to pharmacy providers
reasonably reflects the cost of
dispensing a drug and will ensure
access for these drugs to Medicaid
beneficiaries. Where the professional
dispensing fee might differ because of
unique circumstances for 340B covered
entities or IHS and tribal pharmacies,
the State should look at these
circumstances to determine if a different
professional dispensing fee is warranted
for these entities. One component of the
reimbursement formula should not be
revised without appropriately
evaluating the other part.
With the proposed change in the
definition of ‘‘State’’ to include the
territories, we acknowledge that these
same requirements could ultimately be
applicable to the territories. Since the
territories that participate in the
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Medicaid Program are already required
to submit changes to their State Plans
through the State Plan Amendment
process, we are proposing that the
requirements discussed in this section
would be effective for the territories in
the same manner in which they would
be effective for the 50 States and the
District of Columbia.
N. Optional Coverage of Investigational
Drugs and Other Drugs Not Subject To
Rebate (§ 447.522)
Investigational drugs, also referred to
as experimental drugs, do not fall
within the definition of covered
outpatient drugs set forth in section
1927(k) of the Act; therefore, these drugs
are not subject to rebate. However,
Medicaid coverage may be provided
under section 1905(a)(12) of the Act at
the State’s option, and FFP is available
to the extent it is consistent with section
1903(i) of the Act and § 440.120.
There are a number of other items that
may also be covered as prescribed drugs
or products under section 1905(a)(12) of
the Act, such as whole blood products.
We propose to add § 447.522 to clarify
that States providing coverage of
investigational drugs may only pay for
and receive FFP for these drugs when
they are billed for in accordance with
the FDA final rules 21 CFR Part 312 and
316, as amended by the final rules
published in the August 13, 2009
Federal Register (‘‘Charging for
Investigational Drugs Under and
Investigational New Drug Application’’
(74 FR 40872) and ‘‘Expanded Access to
Investigational Drugs for Treatment
Use’’ (74 FR 40900)). These regulations
clarify the circumstances under which
charging for an investigational drug in a
clinical trial is appropriate, set forth
criteria for charging for an
investigational drug for the different
types of expanded access for treatment,
and clarify what costs can be recovered.
We are also adding a provision to
allow for the coverage of other noncovered outpatient drugs.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
III. Collection of Information
Requirements
Under the Paperwork Reduction Act
of 1995, we are required to provide 60day notice in the Federal Register and
solicit public comment before a
collection of information requirement is
submitted to the Office of Management
and Budget (OMB) for review and
approval. In order to fairly evaluate
whether an information collection
should be approved by OMB, section
3506(c)(2)(A) of the Paperwork
Reduction Act of 1995 requires that we
solicit comment on the following issues:
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• The need for the information
collection and its usefulness in carrying
out the proper functions of our agency.
• The accuracy of our estimate of the
information collection burden.
• The quality, utility, and clarity of
the information to be collected.
• Recommendations to minimize the
information collection burden on the
affected public, including automated
collection techniques.
We are soliciting public comment on
each of these issues for the following
sections of this document that contain
information collection requirements
(ICRs):
A. ICR’s Regarding Medicaid Drug
Rebates (§ 447.509)
As discussed earlier in the preamble,
section 2501(c) of the Affordable Care
Act amended section 1903(m) of the Act
by specifying new conditions for MCO
contracts, including that covered
outpatient drugs dispensed to
individuals eligible for medical
assistance under Title XIX of the Act
who are enrolled with a Medicaid MCO
shall be subject to the same rebate
required by the rebate agreement
authorized under section 1927 of the
Act. Proposed § 447.509(b) adds
requirements for States to collect
necessary drug utilization data from
Medicaid MCOs in order to include
MCO data in the quarterly rebate
requests.
We estimate that these requirements
would affect the 51 State Medicaid
Programs, as well as the territories. The
burden associated with the inclusion of
Medicaid MCOs in the Drug Rebate
Program is the time and effort it would
take for the State Medicaid Program to
gather the drug utilization information
from the Medicaid MCOs and the
subsequent inclusion of said data in the
State’s quarterly rebate request to
manufacturers. Our current reporting
hour burden, specific to the invoice and
State utilization data reporting within
the MDR Program, for the current State
Medicaid Programs is 2,346 hours per
quarter or 9,384 hours annually, at a
total estimated cost of $302,165.
As referenced in § 447.509(b) and
§ 447.511, we believe the collection of
drug utilization data from MCOs and the
subsequent inclusion of said data in the
State’s quarterly rebate request to the
manufacturers will add a total 678 hours
per quarter or 2,712 hours annually to
the current reporting burden for the
States (which include the 50 States,
District of Columbia, and the territories).
Therefore, the total new reporting
burden, as a result of this proposed rule
requesting additional requirements to
collect drug utilization data from MCOs,
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5351
will be 2,712 hours annually at a total
estimated cost of $98,744.
The aforementioned burden estimates
will be submitted for OMB review and
approval as a revision to the information
collection request currently approved
under OMB control number 0938–0582.
Proposed § 447.509(c) would also
require States to remit to the Federal
government the amount of the savings
resulting from the increases in the
rebate percentages. The reporting
process is similar to the current
reporting process for drug expenditures
and rebates onto the CMS–64 Form. In
addition to reporting onto the CMS–64
Form the quarterly amount for
prescribed drug expenditures, Federal
rebates, and rebates under State side bar
agreements, States will report the total
quarterly rebate offset amount that they
are remitting to the Federal government
for the fee-for-service rebates they
currently receive from drug
manufacturers and for the MCO rebates
they will receive from drug
manufacturers. The information
collection requirements and burden
associated with CMS–64 are already
approved by OMB through April 30,
2014, and have been assigned OMB
control number 0938–0067. This
proposed rule does not impose any new
or revised burden or reporting or
recordkeeping requirements concerning
CMS–64.
B. ICR’s Regarding Requirements for
Manufacturers (§ 447.510)
Manufacturers must report,
electronically, product and quarterly
pricing information to CMS not later
than 30 days after the end of the rebate
period. Monthly pricing and units are
due no later than 30 days after the end
of the month. In addition, customary
prompt pay discounts and nominal
prices must be reported quarterly. The
proposed rule would significantly revise
the definitions of AMP and best price
and, therefore, would require the
manufacturers to reconfigure their
pricing systems to correctly calculate
AMP and best price. In addition,
manufacturers must submit the total
number of units that are used to
calculate the monthly AMP. Therefore,
the burden associated with these new
requirements is the time and effort it
would take for a drug manufacturer to
reconfigure its pricing systems to
correctly calculate AMP and best price
before it can submit the required data to
CMS. We estimate that these
requirements would affect the
approximately 600 drug manufacturers
in the Medicaid Rebate Program. We
believe the changes to the AMP and best
price definitions will require 240 hours
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per manufacturer, for a one-time total of
144,000 burden hours with a one-time
total estimated burden cost of
$8,640,000. Once the pricing systems
have been reconfigured, there should be
no additional burden in time or effort
than that which already exists.
Manufacturers will be required to
submit the FDA application number
issued by FDA when the product is
approved. If the product does not
currently have an FDA application
number, the manufacturer must submit
evidence demonstrating that the product
is otherwise a covered outpatient drug.
CMS shall refer to this evidence of
demonstration as covered outpatient
drug status, or COD status.
This information should not be
difficult for the manufacturer to
determine since the manufacturer
should already know the FDA
application number of the product when
it was approved by FDA, or the reason
it qualifies as a covered outpatient drug,
if there is no application number.
We estimate that these requirements
would affect approximately 600 drug
manufacturers that participate in the
Medicaid Drug Rebate Program. The
burden associated with the reporting of
the FDA application number or the COD
status is the time and the effort it would
take for each drug manufacturer to
retrieve this information from their
records and submit it to CMS.
Therefore, we believe that the new
requirements to report the FDA
application number and the COD status
will require a one-time total of 3,000
hours at a one-time total estimated
burden cost of $180,000.
Manufacturers will also be required to
identify drugs that are approved by the
FDA exclusively for pediatric
indications. These drugs will be referred
by CMS as ‘‘Exclusively Pediatric’’
drugs. This information should not be
difficult for manufacturers to determine
and therefore would not add any
significant hourly burden since the
exclusively for pediatric indications
will be provided by the FDA upon
approval of these drugs.
Additionally, manufacturers will need
to consider certain requirements when it
comes to the calculation of their AMP
for inhalation, infusion, instilled,
implanted, and injectable drugs (5i),
when not generally dispensed through
retail community pharmacies. Using the
methodology proposed earlier in this
rule, a manufacturer would be required
to identify and determine the AMP of
these drugs. It is our estimate that these
requirements would affect
approximately 600 drug manufacturers
that participate in the Medicaid Drug
Rebate Program. The burden associated
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with the initial reporting of the 5i drugs
is the time and the effort it would take
for each drug manufacturer to identify
these drugs and then to determine
which of the 5i drugs are not generally
dispensed through a retail community
pharmacy by using the methodology
proposed earlier in this rule. However,
it is our understanding that each drug
manufacturer should have some
knowledge as to which drug is a 5i
based on the approval information the
manufacturer received from the FDA as
well as the FDA Route of
Administration list that CMS has
identified. Once the manufacturer has
established its initial list of 5i drugs, it
would then be required on both a
monthly, as well as quarterly basis, to
determine which of those drugs are not
generally dispensed through a retail
community pharmacy. Therefore, we
believe that the new reporting
requirements will require a one-time
total of 1,500 burden hours for
manufacturers to identify the 5i drugs at
a one-time total estimated burden cost
of $90,000. In addition, on both a
monthly and quarterly basis (12 months,
plus 4 quarters, for a total of 16 times
per year) the manufacturer will be
required to determine whether the
percentage of sales for the 5i drugs has
met the threshold to be considered not
generally dispensed through a retail
community pharmacy. Specifically, we
estimate that it will add 20 hours per
response with 16 responses per year for
each manufacturer to identify which 5i
drugs are not generally dispensed
through a retail community pharmacy.
This equates to a total estimate of 320
additional hours annually per
manufacturer. The total annual burden
hours for the 600 drug manufacturers
participating in the Medicaid Rebate
Program is estimated to be 192,000
hours with a total cost of $11,520,000.
Furthermore, manufacturers
participating in the rebate program that
have reformulated drugs are now
required to calculate an alternative
rebate calculation for certain drugs. In
order to calculate the alternative rebate
calculation for a line extension drug of
a brand name in an oral solid dosage
form, the line extension drug and the
initial brand name listed drug need to
be identified. Although CMS will be
identifying both the initial brand name
listed drug and the line extension drug
for the initial three quarters for
manufacturers, they will be responsible
for identifying the initial brand name
listed drug and the line extension drug
after the initial three quarters.
Manufacturers are responsible for
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calculating the unit rebate amount for
the line extension drug.
We estimate that these requirements
would affect approximately 600 drug
manufacturers that participate in the
Medicaid Drug Rebate Program. The
burden associated with the reporting of
the initial brand name listed drug and
the line extension drug is the time and
the effort it would take for each drug
manufacturer to identify these drugs.
However, it is our understanding that
each drug manufacturer should have
some knowledge on which drug is the
line extension based on the approval
information that the manufacturer
received from the FDA as well as the
Chemical Type that CMS has identified
as a line extension drug and the initial
brand name listed drug. Therefore, we
believe that the new reporting
requirements to identify the initial
brand name listed drug and the line
extension drug would add 20 additional
hours per quarter, per manufacturer; or
48,000 total hours annually to the drug
manufacturers at a total estimated cost
of $2,880,000.
Finally, a manufacturer is required to
retain records for 10 years from the date
the manufacturer reports data to CMS
for that rebate period. While this
requirement is subject to the PRA, we
believe this is a usual and customary
business practice as defined in 5 CFR
1320.3(b)(2) and, therefore, the
associated burden is exempt from the
PRA.
The aforementioned burden estimates
will be submitted for OMB review and
approval as a revision to the information
collection request currently approved
under OMB control number 0938–0578.
C. ICR’s Regarding Requirements for
States (§ 447.511)
The definition of the term ‘‘States’’
would be revised to include the
territories: The Commonwealth of
Puerto Rico, the Virgin Islands, Guam,
the Northern Mariana Islands and
American Samoa, in addition to the 50
States and the District of Columbia. The
territories will be able to receive
manufacturer rebates through the MDR
program in the same manner that the 50
States and the District of Columbia are
currently receiving rebates.
In order for territories to be able to
begin collecting rebates from the
manufacturers, the territories will be
required to come into compliance with
the MDR program because the systems
that the territories currently have are not
setup for the MDR program. As a result,
these territories will likely have to
utilize contractors in order to ensure
that their systems are in place to begin
to collect rebates from manufacturers.
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We are unsure what the time, effort and
cost would be for this compliance
process to be completed and seek
comments specific to this issue.
States will have to report the total
MCO rebates they receive from
manufacturers onto the MBES CMS–64
Form and submit this data to CMS on
a quarterly basis. The information
collection requirements and burden
associated with CMS–64 are already
approved by OMB through April 30,
2014, and have been assigned OMB
control number 0938–0067. This
proposed rule does not impose any new
or revised burden or reporting or
recordkeeping requirements concerning
CMS–64.
TABLE 5—ANNUAL RECORDKEEPING AND REPORTING REQUIREMENTS
Regulation Section(s)
OMB
Control No.
§ 447.509(b), § 447.511 .........
§ 447.510 ...............................
§ 447.510 ...............................
§ 447.510 ...............................
§ 447.510 ...............................
§ 447.510 ...............................
Total ...............................
Total annual
burden
(hours)
Hourly labor
cost of
reporting
($)
Total labor
cost of
reporting
($)
224
600
600
600
9600
2400
12.1
240
5
2.5
20
20
2,712
144,000
3,000
1,500
192,000
48,000
36.41
60
60
60
60
60
98,744
8,640,000
180,000
90,000
11,520,000
2,880,000
0
0
0
0
0
0
98,744
8,640,000
180,000
90,000
11,520,000
2,880,000
3,056
....................
Burden per
response
(hours)
56
600
600
600
600
600
* 0938–0582
* 0938–0578
* 0938–0578
* 0938–0578
* 0938–0578
* 0938–0578
Responses
14,024
....................
391,212
....................
23,408,744
........................
23,408,744
Respondents
Total capital/
maintenance
costs
($)
Total cost
($)
* The data contained in the table reflects the burden associated with the proposed revisions to the information collection requests approved under the OMB control
numbers listed. The table does not display the currently approved burden for the listed OMB control numbers.
We have submitted a copy of this
proposed rule to the OMB for its review
of information collection and
recordkeeping. These requirements are
not effective until they have been
approved by the OMB.
If you comment on these information
collection and recordkeeping
requirements, please do either of the
following:
1. Submit your comments
electronically as specified in the
ADDRESSES section of this proposed rule;
or
2. Submit your comments to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget,
Attention: CMS Desk Officer, [CMS–
2345–P] Fax: (202) 395–6974; or
Email: OIRA_submission@
omb.eop.gov
IV. Response to Comments
Because of the large number of public
comments we normally receive on
Federal Register documents, we are not
able to acknowledge or respond to them
individually. We will consider all
comments we receive by the date and
time specified in the DATES section of
this preamble, and, when we proceed
with a subsequent document, we will
respond to the comments in the
preamble to that document.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
V. Economic Analyses
A. Regulatory Impact Analysis
1. Introduction
We have examined the impacts of this
rule as required by Executive Order
12866 on Regulatory Planning and
Review (September 30, 1993), Executive
Order 13563 on Improving Regulation
and Regulatory Review (January 18,
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2011), the Regulatory Flexibility Act
(RFA) (September 19, 1980, Pub. L. 96–
354), section 1102(b) of the Act, section
202 of the Unfunded Mandates Reform
Act of 1995 (March 22, 1995, Pub. L.
104–4), Executive Order 13132 on
Federalism (August 4, 1999), and the
Congressional Review Act (5 U.S.C.
804(2)).
Executive Orders 12866 and 13563
direct agencies to assess all costs and
benefits of available regulatory
alternatives and, if regulation is
necessary, to select regulatory
approaches that maximize net benefits
(including potential economic,
environmental, public health and safety
effects, distributive impacts, and
equity). Executive Order 13563
emphasizes the importance of
quantifying both costs and benefits, of
reducing costs, of harmonizing rules,
and of promoting flexibility. This rule
has been designated an ‘‘economically’’
significant rule, under section 3(f)(1) of
Executive Order 12866. Accordingly,
the rule has been reviewed by the Office
of Management and Budget.
We solicit comment on the entire
Economic Analyses section.
2. Statement of Need
This proposed rule would implement
changes to section 1927 of the Act as set
forth in section 221 of Division F, Title
II, of the Omnibus Appropriations Act,
2009 (Pub. L. 111–8, enacted on March
11, 2009). This includes changes to, (1)
section 1927 of the Act as set forth in
sections 2501, 2503, and 3301(d)(2) of
the Patient Protection and Affordable
Care Act of 2010 (Pub. L. 111–148,
enacted on March 23, 2010), (2) section
1927 of the Act as set forth in sections
1101(c) and 1206 of the Health Care and
Education Reconciliation Act of 2010
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(HCERA) (Pub. L. 111–152, enacted on
March 30, 2010), and (3) section 1927 of
the Act as set forth in section 202 of the
Education Jobs and Medicaid Funding
Act (Pub. L. 111–226, enacted on
August 10, 2010). It also proposes to
codify other requirements in section
1927 of the Act pertaining to the
Medicaid drug rebate program and
revise certain regulatory provisions
presently codified at 42 CFR part 447,
subpart I and make other changes.
3. Overall Impacts
Overall, we estimate this rule would
save approximately $17.7 billion for
Federal Fiscal Years (FFYs) 2010
through 2014, reflecting $13.7 billion in
Federal savings and $4.0 billion in State
savings, as shown in the Table 6. These
impact estimates represent the increased
percentages of rebates on generic and
brand name drugs, the treatment of new
formulations, the change in the
maximum rebate amounts, the extension
of rebate collection for Medicaid
managed care organizations, and
provides for adequate pharmacy
reimbursement. Lastly, we estimate
costs to MCOs, drug manufacturers, and
States in the amount of $81.4 million for
FFYs 2010 through 2014 which includes
administrative and infrastructure
expenses necessary to implement the
required systems changes.
7 Except as noted below, savings estimates were
developed by the Office of the Actuary (OACT) and
the Center for Medicaid, CHIP and Survey &
Certification (CMCS) at CMS and are consistent
with the President’s FY 2012 budget baseline.
(* The estimates for section 2503 were developed
by CMS. An alternative methodology discussed
below produces a 5-year cost to States and Federal
government of $1.7 billion explained in the
alternatives considered section of the Regulatory
Impact Analysis).)
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TABLE 6—STATE AND FEDERAL SAVINGS (¥) OR COSTS (+) (FFYS 2010–2014)
[In $millions] 7
Affordable Care Act section and provision
2010
2011
¥$350
0
2012
¥$730
0
2013
¥$765
0
Section 2501(a)(1)—Increase minimum rebate percentages for brand name drugs.
Federal ............
State ................
Section 2501(a)(2)—Recapture of total savings .................
Federal ............
State ................
Section 2501(b)—Increase rebate percentages for generic
drugs.
Section 2501(c)—Extension of collection of rebates for
MCOs.
Section 2501(d)—Rebates new formulation drugs .............
Federal ............
State ................
Federal ............
State ................
Federal ............
State ................
Federal ............
State ................
Federal ............
State ................
Federal ............
State ................
Federal ............
State ................
¥30
0
¥580
¥280
¥160
0
30
20
0
0
¥310
0
¥1,400
¥260
¥50
0
¥720
¥490
¥345
0
40
30
¥351
¥234
¥420
0
¥2,576
¥694
¥55
¥0
¥720
¥560
¥360
0
40
30
¥702
¥468
¥440
0
¥3,002
¥998
.........................
¥1,660
¥3,270
¥4,000
Section 2501(e)—Maximum rebate amount .......................
Section 2503—Providing adequate pharmacy * ..................
Interactions ** .......................................................................
Total Impact .........................................................................
Total Federal & State Impacts .....................................
¥$810
0
2014
Total
2010–2014
¥$865
0
¥$3,520
0
¥55
0
¥770
¥580
¥380
0
40
30
¥702
¥468
¥510
0
¥3,187
¥1,018
¥65
0
¥820
¥620
¥400
0
50
30
¥702
¥468
¥700
¥5
¥3,502
¥1,063
¥255
0
¥3,610
¥2,530
¥1,645
0
200
140
¥2,457
¥1,638
¥2,380
¥5
¥13,667
¥4,033
¥4,205
¥4,565
¥17,700
Included with affected provisions
TABLE 7—COSTS TO MCOS, DRUG MANUFACTURERS, AND STATES
[FFYs 2010–2014]
(In $millions)
Provision(s)
Total
2012
(FFYs 2010–
2014)
Regulation section(s)
2010
2013
2014
§ 447.509(b), § 447.511 ......
§ 447.510 ............................
$0.1
23.3
$0.1
14.4
$0.1
14.4
$0.1
14.4
$0.1
14.4
$0.49
80.91
Total Costs .................................................................................................................
srobinson on DSK4SPTVN1PROD with PROPOSALS2
Drug Rebates for Medicaid MCOs ..................................
Requirements for manufacturers .....................................
2011
23.4
14.5
14.5
14.5
14.5
81.4
4. Detailed Economic Analysis
All savings estimates provided were
developed by the Office of the Actuary
(OACT) and the Center for Medicaid,
CHIP and Survey & Certification (CMCS)
at CMS. We note that the Congressional
Budget Office (CBO), in its estimates of
the budgetary effects of these provisions
of the Affordable Care Act, reached
similar aggregate estimates with a $600
million difference between CMS and
CBO total estimates. The report can be
seen at the following link (https://
www.cbo.gov/ftpdocs/113xx/doc11379/
AmendReconProp.pdf). CBO reached an
estimated savings of $13.1 billion in
Federal outlay reduction for FFY 2010–
2014 compared to CMS’ estimates of
$13.7 billion for that same time period.8
Savings estimates for sections 2501 and
2503 of the Affordable Care Act reflect
increased rebate percentages for generic
and brand name drugs, treatment of new
formulations, revised FULs, and
extended collection of rebates to MCOs.
As well as a cost estimate for provision
of section 2501(e) of Affordable Care Act
for maximum rebate amount. The
following analysis describes the
methodology used to reflect each
provision’s savings estimates.
The estimates for section 2501(a)(1) of
the Affordable Care Act were derived
from baseline Medicaid prescription
drug rebates developed for the midsession review (MSR) of the FY 2010
budget. Data from the MDR system was
used to estimate the share of rebates
attributable to single source and
innovator multiple source drugs. Using
this data, we developed a model to
estimate the effect of raising the
minimum rebate by fitting a distribution
to data on brand drug rebates as a
percent of AMP with and without the
15.1 percent minimum. The distribution
was then used to calculate the mean
rebate percentage taking into account
the new minimums specified in section
2501(a) of the Affordable Care Act.
These percentages were applied to
baseline brand drug rebates to estimate
potential savings from the provision. A
behavioral offset of 40 percent was
applied to the potential savings to
account for actions on the part of
(** These are interactions among drug provisions
and the interaction of drug provisions with
Medicaid expansion.)
manufacturers to minimize the impact
of the higher rebate payments (for
example, by raising prices).
The estimate for section 2501(a)(2) of
the Affordable Care Act represents the
State share of savings projected for
subsections (a)(1),(b), and (d) of section
2501 and is included in the Federal
savings of those subsections.
The impact of section 2501(b) of the
Affordable Care Act was estimated using
MDR data to estimate the share of
baseline Medicaid drug rebates
attributable to non-innovator, multiple
source drugs. Increasing the rebate from
11 percent to 13 percent of AMP results
in additional rebates of 2 percent of
AMP, or about 18 percent (2/11) of
projected generic drug rebates.
For section 2501(c) of the Affordable
Care Act, current projections of
Medicaid prescription drug spending
and managed care premiums were
developed as part of the MSR 2010
Medicaid baseline. The estimated
impact represents two different effects
of this section. First, current
prescription drug spending by Medicaid
8 https://www.cbo.gov/ftpdocs/113xx/doc11379/
AmendReconProp.pdf.
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managed care plans would receive
additional rebates. Estimates for (1) the
portion of managed care plan
expenditures going to rebates and (2) the
level of additional rebates that could be
obtained by the managed care plans
were developed to calculate this impact.
Second, it is anticipated that some
fee-for-service prescription drug
spending that is currently carved out of
Medicaid managed care plans would be
included in future managed care
contracts. To develop this estimate,
estimates were made for (1) the
increased efficiency of managed care
plans in managing prescription drug
use, and (2) the increased administrative
costs by including additional
expenditures under managed care plans.
It was also assumed that 10 percent of
current fee-for-service drug spending
would eventually shift to Medicaid
managed care plans.
About 75 percent of the savings to the
Federal government from this section
are estimated to come from the impact
of additional rebates for managed care
plan expenditures on prescription
drugs, and about 25 percent are
estimates to come from the impact of
moving fee-for-service prescription drug
spending into managed care plans.
The impact for section 2501(d) of the
Affordable Care Act utilized MDR data
and focused on new formulations that
are extended-release forms of the initial
brand name listed drug. The analysis
concluded that by calculating the
additional rebate, based on the initial
brand name listed drug, Medicaid
rebates would increase by about 5
percent. A behavioral offset of 15
percent was applied to these potential
savings.
The estimates for section 2501(e) of
the Affordable Act were derived from an
analysis of MDR data for single source
and innovator multiple source drugs for
which the unit rebate amount exceeds
the AMP. The amount of rebates in
excess of AMP was found to account for
approximately one percent of total
Medicaid rebates.
The estimate for FULs under section
2503 was developed by calculating the
FUL based on weighted AMP times 175
percent, including (I) innovator and (N)
non-innovator drugs, for the purpose of
savings and providing adequate
reimbursement to pharmacy providers.
a. Anticipated Effects on Drug
Manufacturers
As previously indicated in the
Collection of Information there are
approximately 600 drug manufacturers
that participate in the Medicaid Drug
Rebate program. The rule would require
all drug manufacturers to provide an
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increased rebate percentage for generic
and brand name drugs.
The burden associated with the drug
program is for labelers to gather and
report existing sales and product
information on an additional monthly
basis and an expanded quarterly basis.
As mentioned previously there are
approximately 600 drug manufacturers
who will have to provide reporting drug
information to CMS. We believe each
manufacturer will spend a one-time
annual burden of approximately
144,000 total hours in complying with
these requirements. The estimated onetime cost to labelers is $8.6 million.
This information is required for the new
base AMP and the new best price. This
is based on the Bureau of Labor
Statistics (BLS) average rate of $60.00 an
hour for a computer systems analyst.
Manufacturers also will be required to
submit the FDA application number
issued by FDA when the product is
approved. If the product does not
currently have an FDA application
number, the manufacturer must provide
a demonstration that product is a
covered outpatient drug, or a COD
status. We estimate that these
requirements would affect
approximately 600 drug manufacturers
that participate in the Medicaid Drug
Rebate Program. The burden associated
with the reporting of the FDA
application number or the COD status is
the time and the effort it would take for
each drug manufacturer to retrieve this
information from their records and
submit it to CMS. Therefore, we believe
that the new requirements to report the
FDA application number or the COD
status will require a total one-time
burden of 3,000 hours at an estimated
cost of $180,000. This is based on the
BLS average rate of $60.00 an hour for
a computer systems analyst.
In addition, we believe that it will
take time for manufacturers to identify
the drugs that fall into 5i drugs category.
We estimate they will spend a one-time
total of 1,500 burden hours to identify
these drugs. This translates to a onetime cost for manufacturers to identify
the 5i drugs of $90,000, utilizing the
average BLS wage rate of $60 an hour
for this function. Furthermore, we
believe that it will require all
manufacturers to spend 192,000 total
hours annually in identifying which
drugs fall into the 5i category. The
estimated cost to the labelers for this
addition is $11.5 million. This is also
based on the average BLS wage rate of
$60 an hour for this function. More
information on manufacturer
requirements can be found in § 447.510
of this proposed rule.
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Lastly, we believe that the initial
identification of the initial brand name
listed drug and the line extension would
also add an additional 48,000 annual
hours to identify which drugs with the
extension qualify. The estimated
additional cost to labelers for this
addition is also $2.9 million. This figure
is also based on the average BLS wage
rate of $60 an hour for this function.
Additional information can be found in
section § 447.510 of this proposed rule.
b. Anticipated Effects on Retail
Community Pharmacies
Retail community pharmacies would
be affected by this regulation, as the law
will result in FULs that are closer to the
acquisition cost of the drug. In a 2009
OIG report titled ‘‘A Comparison of
Medicaid Federal Upper Limit Amounts
to Acquisition Costs, Medicare Payment
Amounts, and Retail Prices,’’ the OIG
found that for the fourth quarter of FY
2007 the pre-DRA FUL reimbursement
was more than double the average
pharmacy acquisition cost for 46 of the
50 highest- expenditure FUL drugs. The
Affordable Care Act FULs would
generally reduce those limits in
comparison to the pre-DRA highly
inflated FULs and, thereby, reduce
Medicaid payment for drugs subject to
the limits. However, we note that since
States had the option to reimburse at
their SMAC, instead of the pre-DRA
FUL, the actual reimbursement to the
pharmacies under the Affordable Care
Act FUL may be more compared to that
SMAC reimbursement. An example of
this is exemplified in comparing the
pre-DRA FUL, the Affordable Care Act
FUL and Indiana’s SMAC, as explained
the preamble of § 447.514 of this
proposed rule.
However, other than the comparison
chart provided in § 447.514 of this
proposed rule, we have not analyzed
how each State’s MAC program would
impact the total savings under the new
Affordable Care Act FUL methodology.
Therefore, we invite public comments
on this impact. The Federal savings in
section 2503 of the Affordable Care Act
reflect this change in reimbursement for
retail community pharmacies. Although
there are savings to the Medicaid
program largely realized because of
lower payment to pharmacies,
pharmacies may receive a higher
reimbursement under the Affordable
Care Act FUL than they would when
compared to what States currently
reimburse pharmacies.
c. Anticipated Effects on State Medicaid
Programs
States share in the savings from this
rule. As noted in the Table 6, we
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estimate a 5-year State savings of over
$4.0 billion. We also note States would
be impacted by the provisions of this
regulation that offset the States’ share of
the increased rebate amounts under the
Affordable Care Act. State
administrative costs associated with this
regulation are minor; as States currently
pay based on a FUL, have already
determined their drug reimbursement
rates, and currently collect claims
information on physician administered
drugs.
The States will have added reporting
data for the MCOs to CMS and we
believe that this will require a total of
2,712 hours annually costing the States
$98,744.
Also, as a result of the increased
rebate amounts under the national
rebate agreement, manufacturers may
reduce rebates they pay to States
through supplemental rebate
agreements. While this potential loss of
supplemental rebates is not a direct
consequence of this proposed rule, we
recognize that this may occur.
The interactions of the drug
provisions with the Medicaid expansion
in the Affordable Care Act will provide
States a savings of $5 million in FFY
2014. More information can be found in
§ 447.509(c) and § 447.511 of this
proposed rule.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
d. Anticipated Effects on U.S.
Territories
The definition of the term ‘‘States’’
would be revised to include the
territories: The Commonwealth of
Puerto Rico, the Virgin Islands, Guam,
the Northern Mariana Islands and
American Samoa, in addition to the 50
States and the District of Columbia. The
territories will be able to receive
manufacturer rebates through the MDR
program in the same manner that the 50
States and the District of Columbia are
currently receiving rebates.
In order for territories to be able to
begin collecting rebates from the
manufacturers, the territories will be
required to come into compliance with
the MDR program because the systems
that the territories currently have are not
setup for the MDR program. As a result,
these territories will likely have to
utilize contractors in order to ensure
that their systems are in place to begin
to collect rebates from manufacturers.
We do not have cost estimates for this
compliance process to be completed and
solicit comment specific to this issue.
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5. Alternatives Considered
We considered a number of different
policies and approaches during the
development of this proposed rule.
As mentioned in the Determination of
AMP § 447.504, the goal of the
Affordable Care Act is to capture the
AMP for those drugs that would be
difficult for manufacturers to calculate
an AMP based on only retail community
pharmacy sales. Therefore, to eliminate
any problems that may result from a
manufacturer not able to determine an
AMP for a particular drug, Congress
amended the Affordable Care Act to
include inhalation, infusion, instilled,
implanted, or injectable drugs that are
not generally dispensed through retail
community pharmacies. We considered
whether we need to define and
determine which drugs constitute the
five aforementioned. Also, we looked at
Medicare Part B drugs and considered
using their list to define these drugs.
Though, when speaking with our
counterparts in Medicare Part B, the
ASP NDC–HCPCS covered drugs that
are usually not self administered were
not all inclusive. In addition to using
the Medicare Part B list, we also
considered whether CMS or
manufacturers would be responsible for
defining which drugs would fall into
this category. Additionally, we
considered using the FDAs dosage forms
and route of administrations to assist
manufacturers in determining which
drugs meet this requirement.
We propose to use a multistep process
to identify if the drug is not generally
dispensed. To recap, first manufacturers
would identify which drugs would fall
within the parameters of the five
aforementioned drugs. Then, they
would need to determine if the drug is
‘‘not generally dispensed’’ through a
retail community pharmacy. (See
§ 447.504 to learn more about the
alternatives considered in developing
AMP policy.)
With regard to the offset of the
increased rebate percentages, we did
consider offsetting the non-Federal
share of the entire difference between
the minimum rebate percentages in
effect on December 31, 2009 and the
new minimum rebate percentages in
effect under Affordable Care Act,
regardless of whether States received a
rebate amount based on the difference
between AMP and best price. However,
after careful consideration of the
provision in 2501 of the Affordable Care
Act, we propose to calculate the offset
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amount to reflect rebates based on the
difference between AMP and best price.
We also considered a different
interpretation when calculating the
offset for line extension drugs. However,
we believe that the new alternative
rebate calculation is more aligned than
the statute.
We also considered determining
whether there would be a cost or
savings in implementing the Affordable
Care Act FUL by comparing simulations
of the DRA FUL and new Affordable
Care Act FUL, using price, utilization,
and reimbursement data from the MDR
system combined with generic group
codes from First Data Bank. The
difference in savings from these
simulations (expressed as a percent of
total Medicaid drug spending) was
applied to projected Medicaid
prescription drug spending developed
for the mid-session review of the FY
2010 Budget, resulting in a five-year
Federal and State cost of $1.7 billion for
the Affordable Care Act FULs compared
to the DRA FULs. However, this
alternative does not take into account a
State’s ability to choose to reimburse at
the SMACs, which may be lower than
the FUL for a drug. As a result, this
alternative/methodology yields a cost to
the States and Federal government,
when in actuality it should reflect a
savings as many States have
implemented their own SMAC and
reimburse below the FUL. In addition,
the DRA FUL was never implemented
and therefore this alternative is based on
unpublished FULs and not
representative of actual reimbursement.
We solicit comment on the
Alternatives Considered section.
6. Accounting Statement and Table
As required by OMB’s Circular A–4
(available at https://
www.whitehouse.gov/omb/circulars/
a004/a-4.pdf), in the Table 8 we have
prepared an accounting statement
showing the classification of the
transfers and costs associated with the
provisions of this proposed rule. Table
9 provides our best estimate of the
decreases in Medicaid payments and
increase in drug rebates under sections
2501(a), 2501(b), 2501(c), 2501(d),
2501(e), and 2503 of the Affordable Care
Act. All transfers to the Federal and
State Medicaid program are from retail
pharmacies and drug manufacturers.
Lastly, we present the costs to MCOs,
Drug Manufacturers, and States.
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5357
TABLE 8—ACCOUNTING STATEMENT: CLASSIFICATION OF ESTIMATED TRANSFERS AND COSTS, FROM FFYS 2010 TO 2014
[In $millions]
Category
TRANSFERS
Annualized Monetized Transfers
Year Dollar
Discount Rate
Period Covered
2011
3%
Primary Estimate ...............................................
From/To ..............................................................
7%
¥$2,667.5
FFYs 2010–
2014
¥$2,704.8
Reduction in transfers from the Federal Government to State Governments.
Category
TRANSFERS
Annualized Monetized Transfers
Year Dollar
Discount Rate
2011
7%
¥$780.0
Primary Estimate ...............................................
Period Covered
3%
FFYs 2010–
2014
¥$795.1
From/To ..............................................................
Reduction in transfers from the State Governments to Retail Pharmacies and increased transfers from Drug Manufacturers to State Governments.
Category
COSTS
Annualized Monetized Transfers
Year Dollar
Units Discount Rate
2011
7%
Primary Estimate ...............................................
$16.5
3%
Period Covered
FFYs 2010–
2014
$16.4
Costs to MCOs, Drug Manufacturers, and States.
7. Conclusion
We estimate savings from this
regulation of $17.7 billion over 5 years,
$13.7 billion to the Federal government
and $4.0 billion to the States. Most of
these savings result from the increased
rebate percentages on brand name drugs
and the offsets of the total savings of the
increased rebate percentage, treatment
of new formulations, and from the
collection of rebates from enrollees of
MCOs. Lastly, we estimate costs to
MCOs, drug manufacturers, and States
of $81.4 million for FFYs 2010 through
2014.
While the effects of this regulation are
substantial, they are a result of changes
in the law.
B. Regulatory Flexibility Act Analysis
The RFA requires agencies to analyze
options for regulatory relief of small
entities, if a rule has a significant impact
on a substantial number of small
entities. For purposes of the RFA, small
entities include small businesses, nonprofit organizations, and small
governmental jurisdictions. Individuals
and States are not included in the
definition of a small entity. For
purposes of the RFA, three types of
small businesses are potentially
impacted by this proposed rule. These
include small retail community
pharmacies, small pharmaceutical
manufacturers participating in the
Medicaid Drug Rebate Program, and
small Medicaid managed care
organizations (MCOs). More detailed
analysis on the impact of these entities
is provided in the Detailed Economic
Analysis section (V.A.4) above. The
great majority of hospitals and most
other health care providers and
suppliers are small entities, either by
being nonprofit organizations or by
meeting the Small Business
Administration’s (SBA) definition of a
small business (having revenues of less
than $7.0 million to $34.5 million in
any one year).
TABLE 9—IMPACT ON SMALL ENTITIES
Number of
entities
Small entity type
srobinson on DSK4SPTVN1PROD with PROPOSALS2
Pharmaceutical Manufacturers in Medicaid Drug Rebate Program .................................
600
Small Retail Community Pharmacies ...............................................................................
Small Rural Hospitals .......................................................................................................
Small (HMOs/MCOs) Health Maintenance Organizations/Managed care organizations
17,069
700
* 118
Impact (FFYs 2010–2014)
Decrease in revenue of $5.4 billion as
a result of higher rebates over 5
years.
Minimal impact.
Minimal impact.
Decrease in revenue of $6.1 billion
over 5 years.
(* Figure may reflect overestimation relative to overall MCOs.)
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For purposes of the RFA, most of the
retail pharmacies are considered small
businesses according to the SBA’s size
standards with total revenues of $25.5
million or less in any 1 year
(https://ecfr.gpoaccess.gov/cgi/t/text/
text-idx?c=ecfr&sid=2465b064ba6965
cc1fbd2eae60854b11&rgn=div8&
view=text&node=13:1.0.1.1.16.1.266.9&
idno=13). The latest 2007 SBA estimates
that there are approximately 17,069
small pharmacies. These pharmacies
would be affected by this regulation as
the law will result in lower FULs for
most drugs subject to the payment
limits, thus reducing Medicaid
payments to pharmacies for generic
drugs. The revision to the FULs would
generally reduce those limits and,
thereby reduce Medicaid payments for
drugs that are subject to the payment
limits. The savings for section 2503 of
the Affordable Care Act reflect this
statutory change. Beginning September
2011, the publication of AWP by First
Databank would in all likelihood cease;
therefore, CMS proposes to replace the
term ‘‘estimated acquisition cost’’ with
Actual Acquisition Cost (AAC) and
require States to begin paying pharmacy
providers based on the AAC of the drug.
Additionally States will reimburse
providers with a comparable dispensing
fee as mentioned in § 447.502 of this
proposed rule. There will be a savings
for States and the Federal government
for reimbursing pharmacists at AAC
because of the highly inflated prices that
the Medicaid programs are currently
reimbursing providers.
According to the SBA size standards,
drug manufacturers are considered
small businesses if they have fewer than
750 employees
(https://ecfr.gpoaccess.gov/cgi/t/text/
text-idx?c=ecfr&sid=2465b064ba6965
cc1fbd2eae60854b11&rgn=div8&view=
text&node=13:1.0.1.1.16.1.266.9&
idno=13). Approximately 600 drug
manufacturers currently participate in
the Medicaid Drug Rebate Program. We
believe most manufacturers are small
businesses. We anticipate this rule
would have an impact on small drug
manufacturers. We believe there will be
an impact on these entities and solicit
comments on this analysis.
The rule would require all drug
manufacturers participating in the
Medicaid Drug Rebate program to
increase the rebate percentages that they
are currently paying. Manufacturers are
required by the Affordable Care Act to
pay the increased percentages. The
savings for sections 2501(a)(1), 2501(b)
and 2501(d) reflect this statutory
change.
According to the SBA’s size
standards, an HMO, of which we have
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included MCOs, is considered a small
business if it has revenues of $10
million or less in any one year (https://
ecfr.gpoaccess.gov/cgi/t/text/text-idx?
c=ecfr&sid=2465b064ba6965cc1fbd2eae
60854b11&rgn=div8&view=text&
node=13:1.0.1.1.16.1.266.9&idno=13).
The SBA estimates that there are
approximately 118 small HMO/MCO
Medical centers that meet this
threshold. Because of limited data
available, we are unable to quantify how
many MCOs fall within the HMO
standard and meet the $10 million
threshold. We do contend that only a
small portion of the small MCOs meet
this standard. We request any
information that may help us better
estimate the portion of MCOs that meet
the SBA standard. The small Medicaid
MCOs may be affected by this rule if
manufacturers reduce rebate payments
to them to any extent that these rebates
are paid to the States but these costs
would likely be mitigated because it is
likely that the MCOs rates would be
adjusted.
Therefore, the Secretary has
determined that this proposed rule
would have a significant economic
impact on a substantial number of small
entities. We offer an analysis of the
alternatives considered in section V.A.5
of this proposed rule. The analysis
above, together with the remainder of
this preamble, constitutes the initial
regulatory flexibility analysis. We solicit
comment on the RFA analysis.
In addition, section 1102(b) of the Act
requires us to prepare a regulatory
impact analysis if a rule may have a
significant impact on the operations of
a substantial number of small rural
hospitals. This analysis must conform to
the provisions of section 603 of the
RFA. For purposes of section 1102(b) of
the Act, we define a small rural hospital
as a hospital that is located outside of
a metropolitan statistical area and has
fewer than 100 beds. There are
approximately 700 small rural hospitals
that meet this definition. We do not
expect this rule to have a significant
impact on small rural hospitals although
States are now required to furnish
rebates from MCOs including NDCs for
physician administered drugs. The
national cost of this provision would be
estimated at $580 million for FY 2010.
However, the impact on these entities
would be minimal because there would
be no other requirement except for
providing NDC numbers for physician
administered drugs. Therefore, the
Secretary has determined that this
proposed rule would not have a
significant impact on the operations of
a substantial number of small rural
hospitals. At this time, we are unable to
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specifically estimate quantitative effects
on small retail pharmacies, particularly
those in low income areas where there
are high concentrations of Medicaid
beneficiaries. We request any
information that may help us better
assess those effects before we make final
decisions.
C. Unfunded Mandates Reform Act
Analysis
Section 202 of the Unfunded
Mandates Reform Act of 1995 (UMRA)
also requires that agencies assess
anticipated costs and benefits before
issuing any rule whose mandates
require spending in any 1 year of $100
million in 1995 dollars, updated
annually for inflation. In 2011, that
threshold is approximately $136
million. We expect this proposed rule
would impose additional costs to
manufacturers, whereas it would likely
increase savings for States and the
Federal government. A detailed
discussion on costs is offered below. We
believe the rule would not impose
additional costs to States and local
governments. This proposed rule will
have tribal implications, and in
accordance with E.O. 13175 and the
HHS Tribal Consultation Policy
(December 2010), CMS will consult with
Tribal officials prior to the formal
promulgation of this regulation.
There would be additional costs for
drug manufacturers. This occurs as a
result of the increased rebate
percentages for generic and brand name
drugs, and the treatment of new
formulation drugs which for
manufacturers, total over $11.2 billion
dollars over the next 5 years.
VI. Federalism Analysis
Executive Order 13132 establishes
certain requirements that an agency
must meet when it promulgates a
proposed rule (and subsequent final
rule) that imposes substantial direct
requirement costs on State and local
governments, preempts State law, or
otherwise has Federalism implications.
This proposed rule does not impose
substantial direct requirement costs on
State or local governments, preempts
State law, or otherwise has Federalism
implications.
List of Subjects in 42 CFR Part 447
Accounting, Administrative practice
and procedure, Drugs, Grant programs—
health, Health facilities, Health
professions, Medicaid, Reporting and
recordkeeping requirements, Rural
areas.
For the reasons set forth in the
preamble, the Centers for Medicare &
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Medicaid Services proposes to amend
42 CFR chapter IV as set forth below:
PART 447—PAYMENTS FOR
SERVICES
1. The authority citation for part 447
continues to read as follows:
Authority: Sec. 1102 of the Social Security
Act (42 U.S.C. 1302).
2. Subpart I is revised to read as
follows:
Subpart I—Payment for Drugs
Secs.
447.500 Basis and purpose.
447.502 Definitions.
447.504 Determination of Average
Manufacturer Price.
447.505 Determination of best price.
447.506 Authorized generic drugs.
447.507 Identification of 5i drugs.
447.508 Exclusion from best price of certain
sales at a nominal price.
447.509 Medicaid drug rebates.
447.510 Requirements for manufacturers.
447.511 Requirements for States.
447.512 Drugs: Aggregate upper limits of
payment.
447.514 Upper limits for multiple source
drugs.
447.516 Upper limits for drugs furnished as
part of services.
447.518 State plan requirements, findings,
and assurances.
447.520 FFP: Conditions relating to
physician-administered drugs.
447.522 Optional coverage of
investigational drugs and other drugs not
subject to rebate.
Subpart I—Payment for Drugs
srobinson on DSK4SPTVN1PROD with PROPOSALS2
§ 447.500
Basis and purpose.
(a) Basis. This subpart—
(1) Interprets those provisions of
section 1927 of the Act that set forth
requirements for drug manufacturers’
calculating and reporting average
manufacturer prices (AMPs) and best
prices and that set upper payment limits
for covered outpatient drugs.
(2) Implements section 1903(i)(10) of
the Act with regard to the denial of
Federal financial participation (FFP) in
expenditures for certain physicianadministered drugs.
(3) Implements section 1902(a)(54) of
the Act with regard to a State plan that
provides covered outpatient drugs.
(4) Implements section
1903(m)(2)(A)(xiii) of the Act, in part,
and section 1927(b) of the Act with
regard to rebates for covered outpatient
drugs dispensed to individuals eligible
for medical assistance who are enrolled
in Medicaid Managed Care
Organizations (MCOs).
(5) Implements section 1902(a)(30)(A)
of the Act with regard to the efficiency,
economy, and quality of care in the
context of payments for covered
outpatient drugs.
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(b) Purpose. This subpart specifies
certain requirements in the Social
Security Act, including changes from
the Affordable Care Act and other
requirements pertaining to Medicaid
payment for drugs.
§ 447.502
Definitions.
For the purpose of this subpart, the
following definitions apply:
5i drug means an inhalation, infusion,
instilled, implanted, or injectable drug
that is not generally dispensed through
a retail community pharmacy.
Actual acquisition cost (AAC) means
the agency’s determination of the
pharmacy providers’ actual prices paid
to acquire drug products marketed or
sold by specific manufacturers.
Authorized generic drug means any
drug sold, licensed, or marketed under
a new drug application (NDA) approved
by the Food and Drug Administration
(FDA) under section 505(c) of the
Federal Food, Drug and Cosmetic Act
(FFDCA) that is marketed, sold or
distributed under a different labeler
code, product code, trade name,
trademark, or packaging (other than
repackaging the listed drug for use in
institutions) than the brand name drug.
Bona fide service fee means a fee paid
by a manufacturer to wholesalers or
retail community pharmacies; that
represents fair market value for a bona
fide, itemized service actually
performed on behalf of the manufacturer
that the manufacturer would otherwise
perform (or contract for) in the absence
of the service arrangement; and that is
not passed on in whole or in part to a
client or customer of an entity, whether
or not the entity takes title to the drug.
The fee includes, but is not limited to,
distribution service fees, inventory
management fees, product stocking
allowances, and fees associated with
administrative service agreements and
patient care programs (such as
medication compliance programs and
patient education programs).
Brand name drug means a single
source or innovator multiple source
drug.
Bundled sale means any arrangement
regardless of physical packaging under
which the rebate, discount, or other
price concession is conditioned upon
the purchase of the same drug, drugs of
different types (that is, at the nine-digit
National Drug Code (NDC) level) or
another product or some other
performance requirement (for example,
the achievement of market share,
inclusion or tier placement on a
formulary), or where the resulting
discounts or other price concessions are
greater than those which would have
been available had the bundled drugs
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5359
been purchased separately or outside
the bundled arrangement.
(1) The discounts in a bundled sale,
including but not limited to those
discounts resulting from a contingent
arrangement, are allocated
proportionally to the total dollar value
of the units of all drugs sold under the
bundled arrangement.
(2) For bundled sales where multiple
drugs are discounted, the aggregate
value of all the discounts in the bundled
arrangement must be proportionally
allocated across all the drugs in the
bundle.
Clotting factor means a hemophilia
clotting factor for which a separate
furnishing payment is made under
section 1842(o)(5) of the Act and which
is included on a list of such factors
specified and updated regularly by the
CMS and posted on the CMS Web site.
Consumer Price Index—Urban (CPI–
U) means the index of consumer prices
developed and updated by the U.S.
Department of Labor. It is the CPI for all
urban consumers (U.S. average) for the
month before the beginning of the
calendar quarter for which the rebate is
paid.
Covered outpatient drug means of
those drugs which are treated as a
prescribed drug for the purposes of
section 1905(a)(12) of the Act, a drug
which may be dispensed only upon a
prescription (except as provided in
paragraphs (2) and (3) of this definition).
(1) A drug can only be considered a
covered outpatient drug if it:
(i) Is approved for safety and
effectiveness as a prescription drug by
the FDA under section 505 or 507 of the
FFDCA where the manufacturer has
obtained a NDA and also under section
505(j) of the FFDCA where the
manufacturer has obtained an ANDA;
(ii) Was commercially sold in the
United States before the enactment of
the Drug Amendments of 1962 or which
is identical, similar, or related (within
the meaning described in FDA
regulations at 21 CFR 310.6(b)(1)) to
such a drug, and which has not been the
subject of a final determination by the
Secretary that it is a ‘‘new drug’’ (within
the meaning of section 201(p) of the
FFDCA) or an action brought by the
Secretary under sections 301, 302(a), or
304(a) of FFDCA to enforce section
502(f) or 505(a) of the FFDCA;
(iii) Is described in section 107(c)(3)
of the Drug Amendments of 1962 and
for which the Secretary has determined
there is a compelling justification for its
medical need or is identical, similar, or
related (within the meaning described
in FDA regulations at 21 CFR
310.6(b)(1)) to such a drug or for which
the Secretary has not issued a notice for
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an opportunity for a hearing under
section 505(e) of the FFDCA. This
provision specifies a proposed order of
the Secretary to withdraw approval of
an application for such drug under
section 505(e) of the FFDCA because the
Secretary has determined that the drug
is less than effective for some or all
conditions of use prescribed,
recommended or suggested in its
labeling;
(iv) Is a biologic product other than a
vaccine that may only be dispensed
upon a prescription and is licensed
under section 351 of the Public Health
Service Act (PHSA) and is produced at
an establishment licensed under section
351 of the PHSA to produce such
product; or
(v) Is insulin certified under section
506 of the FFDCA.
(2) A covered outpatient drug does
not include any drug, biologic product,
or insulin provided as part of or
incident to and in the same setting as,
any of the following services (and for
which payment is made as part of that
service instead of as a direct
reimbursement for the drug):
(i) Inpatient Services;
(ii) Hospice Services;
(iii) Dental Services, except that drugs
for which the State plan authorizes
direct reimbursement to the dispensing
dentist are covered outpatient drugs;
(iv) Physician services;
(v) Outpatient hospital services;
(vi) Nursing facility and services
provided by an intermediate care
facility for the mentally retarded;
(vii) Other laboratory and x-ray
services; or
(viii) Renal dialysis.
(3) A covered outpatient drug does
not include:
(i) Any drug product, prescription or
OTC, for which an NDC number is not
required by the FDA;
(ii) Any drug product that is not listed
electronically with the FDA;
(iii) Any drug product for which a
manufacturer has not submitted to CMS
evidence to demonstrate that the drug
product satisfies the criteria in
paragraph (1) of this definition;
(iv) Any drug product or biological
used for a medical indication which is
not a medically accepted indication; or
(v) Over-the-counter products that are
not drugs.
Customary prompt pay discount
means any discount off of the purchase
price of a drug routinely offered by the
manufacturer to a wholesaler for prompt
payment of purchased drugs within a
specified timeframe and consistent with
customary business practices for
payment.
Innovator multiple source drug means
a multiple source drug marketed under
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a new drug application (NDA) approved
by the FDA, including an authorized
generic drug. It includes a drug product
marketed by any cross-licensed
producers, labelers, or distributors
operating under the NDA and a covered
outpatient drug approved under a
biologic license application (BLA),
product license approval (PLA),
establishment license approval (ELA) or
antibiotic drug approval (ADA). For
purposes of the MDR program, an
original NDA is equivalent to an NDA
filed by the manufacturer for approval
under section 505 of the FFDCA for
purposes of approval by the FDA for
safety and effectiveness.
Lagged price concession means any
discount or rebate that is realized after
the sale of the drug, but does not
include customary prompt pay
discounts.
Line extension means a single source
or innovator multiple source drug that
is in an oral solid dosage form that has
been approved by the FDA as a change
to the initial brand name listed drug in
that it represents a new version of the
previously approved listed drug, such as
a new ester, a new salt, or other
noncovalent derivative; a new
formulation of a previously approved
drug; a new combination of two or more
drugs; or a new indication for an already
marketed drug.
Manufacturer means any entity that
holds the NDC for a covered outpatient
drug or biological product and—
(1) Is engaged in the production,
preparation, propagation, compounding,
conversion, or processing of covered
outpatient drug products, either directly
or indirectly by extraction from
substances of natural origin, or
independently by means of chemical
synthesis, or by a combination of
extraction and chemical synthesis; or
(2) Is engaged in the packaging,
repackaging, labeling, relabeling, or
distribution of covered outpatient drug
products and is not a wholesale
distributor of drugs or a retail pharmacy
licensed under State law.
(3) For authorized generic products,
the term ‘‘manufacturer’’ will also
include the original holder of the NDA.
(4) For drugs subject to private
labeling arrangements, the term
‘‘manufacturer’’ will also include the
entity under whose own label or trade
name the product will be distributed.
Multiple source drug means, for a
rebate period, a covered outpatient drug
for which there is at least one other drug
product which—
(1) Is rated as therapeutically
equivalent as reported in the FDA’s
most recent publication of ‘‘Approved
Drug Products with Therapeutic
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Equivalence Evaluations’’ which is
available at https://www.fda.gov or can
be viewed at the FDA’s Freedom of
Information Public Reading Room at
5600 Fishers Lane, rm. 12A–30,
Rockville, MD 20857 or successor
publications and Web sites;
(2) Is pharmaceutically equivalent and
bioequivalent, as determined by the
FDA; and
(3) Is sold or marketed in the United
States during the rebate period.
National drug code (NDC) means the
numerical code maintained by the FDA
that includes the labeler code, product
code, and package code. For purposes of
this subpart, the NDC is considered to
be an 11-digit code, unless otherwise
specified in this subpart as being
without regard to package size (that is,
the 9-digit numerical code).
National rebate agreement means the
rebate agreement developed by CMS
and entered into by CMS on behalf of
the Secretary or his or her designee and
a manufacturer to implement section
1927 of the Act.
Nominal price means a price that is
less than 10 percent of the AMP in the
same quarter for which the AMP is
computed.
Noninnovator multiple source drug
means—
(1) A multiple source drug that is not
an innovator multiple source drug or a
single source drug;
(2) A multiple source drug that is
marketed under an abbreviated NDA or
an abbreviated antibiotic drug
application;
(3) A covered outpatient drug that
entered the market before 1962 that was
not originally marketed under an NDA;
(4) Any drug that has not gone
through an FDA approval process, but
otherwise meet the definition of covered
outpatient drug; or
(5) Any noninnovator drug that is not
therapeutically equivalent.
(6) If any of the drug products listed
in this definition of a noninnovator
multiple source drug subsequently
receives a new NDA or ANDA approval
from the FDA, the manufacturer must
change the reporting of the product’s
drug category to correlate with the new
product application type and furnish
the appropriate information.
Oral solid dosage form means
capsules, tablets, or similar drugs
products intended for oral use as
defined in accordance with the FDA
regulation at 21 CFR 206.3 that defines
solid oral dosage form.
Over-the-counter drug means a drug
that is appropriate for use without the
supervision of a health care professional
such as a physician, and which can be
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purchased by a consumer without a
prescription.
Pediatric indication means a
specifically stated indication for use by
the pediatric age group, meaning from
birth through 16 years of age, or a subset
of this group, as specified in the
‘‘Indications and Usage’’ section of the
FDA approved labeling.
Professional dispensing fee means the
professional fee which—
(1) Is incurred at the point of sale or
service and pays for costs in excess of
the ingredient cost of a covered
outpatient drug each time a covered
outpatient drug is dispensed;
(2) Includes only pharmacy costs
associated with ensuring that possession
of the appropriate covered outpatient
drug is transferred to a Medicaid
beneficiary. Pharmacy costs include, but
are not limited to, reasonable costs
associated with a pharmacist’s time in
checking the computer for information
about an individual’s coverage,
performing drug utilization review and
preferred drug list review activities,
measurement or mixing of the covered
outpatient drug, filling the container,
beneficiary counseling, physically
providing the completed prescription to
the Medicaid beneficiary, delivery,
special packaging, and overhead
associated with maintaining the facility
and equipment necessary to operate the
pharmacy; and
(3) Does not include administrative
costs incurred by the State in the
operation of the covered outpatient drug
benefit including systems costs for
interfacing with pharmacies.
Rebate period means a calendar
quarter.
Single source drug means a covered
outpatient drug that is produced or
distributed under an NDA approved by
the FDA and has an approved NDA
number issued by the FDA, including a
drug product marketed by any crosslicensed producers or distributors
operating under the NDA. It also
includes a covered outpatient drug
approved under a biological license
application (BLA), product license
approval (PLA), establishment license
approval (ELA), or antibiotic drug
approval (ADA). For purposes of the
MDR program, an original NDA is
equivalent to an NDA filed by the
manufacturer for approval under section
505 of the FFDCA for purposes of
approval by the FDA for safety and
effectiveness.
States means the 50 States, the
District of Columbia and the territories
(the Commonwealth of Puerto Rico, the
Virgin Islands, Guam, the Northern
Mariana Islands and America Samoa).
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United States means the 50 States, the
District of Columbia, and the territories
(the Commonwealth of Puerto Rico, the
Virgin Islands, Guam, the Northern
Mariana Islands and America Samoa).
Wholesaler means a drug wholesaler
that is engaged in wholesale distribution
of prescription drugs to retail
community pharmacies, including but
not limited to manufacturers, repackers,
distributors, own-label distributors,
private-label distributors, jobbers,
brokers, warehouses (including
manufacturer’s and distributor’s
warehouses, chain drug warehouses,
and wholesale drug warehouses),
independent wholesale drug traders,
and retail community pharmacies that
conduct wholesale distributions.
§ 447.504 Determination of Average
Manufacturer Price.
(a) Definitions. For the purpose of this
section, the following definitions apply:
Average Manufacturer Price (AMP)
means, with respect to a covered
outpatient drug of a manufacturer
(including those sold under an NDA
approved under section 505(c) of the
Federal Food, Drug, and Cosmetic Act
(FFDCA)), the average price paid to the
manufacturer for the drug in the United
States by wholesalers for drugs
distributed to retail community
pharmacies and retail community
pharmacies that purchase drugs directly
from the manufacturer.
Average unit price means a
manufacturer’s sales included in AMP
less all required adjustments divided by
the total units sold and included in
AMP by the manufacturer in a quarter.
Charitable and not-for profit
pharmacies means organizations
exempt from taxation as defined by
section 501(c)(3) of the Internal Revenue
Code of 1986.
Insurers means entities that are
responsible for payment to pharmacies
for drugs dispensed to their members,
and do not take actual possession of
these drugs or pass on manufacturer
discounts or rebates to pharmacies.
Net sales means quarterly gross sales
revenue less cash discounts allowed,
except customary prompt pay discounts
extended to wholesalers, and all other
price reductions (other than rebates
under section 1927 of the Act or price
reductions specifically excluded by
statute or regulation) which reduce the
amount received by the manufacturer.
Retail community pharmacy means
an independent pharmacy, a chain
pharmacy, a supermarket pharmacy,
and a mass merchandiser pharmacy that
is licensed as a pharmacy by the State
and that dispenses medications to the
general public at retail prices. Such term
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does not include a pharmacy that
dispenses prescription medications to
patients primarily through the mail,
nursing home pharmacies, long-term
care facility pharmacies, hospital
pharmacies, clinics, charitable or notfor-profit pharmacies, government
pharmacies, or pharmacy benefit
managers.
(b) Sales, nominal price sales,
discounts, rebates, payments, or other
transactions included in AMP. Except
for those sales, nominal price sales,
rebates, discounts and other financial
transactions identified in paragraph (c)
of this section, AMP for covered
outpatient drugs includes the following
sales, nominal price sales and
associated discounts, rebates, payments,
or other transactions:
(1) Sales to wholesalers for drugs
distributed to retail community
pharmacies.
(2) Sales to other manufacturers who
act as wholesalers for drugs distributed
to retail community pharmacies.
(3) Sales, discounts, rebates (other
than rebates under section 1927 of the
Act or as otherwise specified in
regulations), payments, or other
financial transactions that are received
by, paid by, or passed through to retail
community pharmacies.
(4) Sales, discounts, rebates (other
than rebates under section 1927 of the
Act or as otherwise specified in
regulations), payments, or other
financial transactions that are received
by, paid by, or passed through to
entities that conduct business as
wholesalers or retail community
pharmacies, which includes but is not
limited to specialty pharmacies, home
infusion pharmacies and home
healthcare providers.
(c) Sales, nominal price sales, rebates,
discounts, or other transactions
excluded from AMP. AMP excludes the
following sales, nominal sales, rebates,
discounts, or other transactions:
(1) Any prices on or after October 1,
1992, to the Indian Health Service (IHS),
the Department of Veterans Affairs
(DVA), a State home receiving funds
under 38 U.S.C. 1741, the Department of
Defense (DoD), the Public Health
Service (PHS), or a covered entity
described in section 1927(a)(5)(B) of the
Act (including inpatient prices charged
to hospitals described in section
340B(a)(4)(L) of the PHSA).
(2) Any prices charged under the
Federal Supply Schedule (FSS) of the
General Services Administration (GSA).
(3) Any depot prices (including
TRICARE) and single award contract
prices, as defined by the Secretary, of
any agency of the Federal government.
(4) Sales outside the United States.
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(5) Direct and indirect sales to
hospitals.
(6) Sales to health maintenance
organizations (HMOs) (including
managed care organizations (MCOs)),
including HMO or MCO operated
pharmacies.
(7) Sales to long-term care providers,
including nursing facility pharmacies,
nursing home pharmacies, long-term
care facilities, contract pharmacies for
the nursing facility where these sales
can be identified with adequate
documentation, and other entities where
the drugs are dispensed through a
nursing facility pharmacy, such as
assisted living facilities.
(8) Sales to mail order pharmacies.
(9) Sales to clinics and outpatient
facilities (for example, surgical centers,
ambulatory care centers, dialysis
centers, and mental health centers).
(10) Sales to government pharmacies
(for example, a Federal, State, county, or
municipal-owned pharmacy).
(11) Sales to charitable pharmacies.
(12) Sales to not-for-profit
pharmacies.
(13) Sales, associated rebates,
discounts, or other price concessions
paid directly to insurers.
(14) Bona fide service fees paid by
manufacturers to wholesalers, retail
community pharmacies, or any other
entity that conducts business as a
wholesaler or a retail community
pharmacy, including but not limited to
inventory management fees, product
stocking allowances, and fees associated
with administrative agreements and
patient care programs (such as
medication compliance programs and
patient education programs), including
bona fide service fees paid to Group
Purchasing Organizations.
(15) Customary prompt pay discounts
extended to wholesalers.
(16) Reimbursement by the
manufacturer for recalled, damaged,
expired, or otherwise unsalable returned
goods, including (but not limited to)
reimbursement for the cost of the goods
and any reimbursement of costs
associated with return goods handling
and processing, reverse logistics, and
drug destruction but only to the extent
that such payment covers only those
costs.
(17) Associated discounts, rebates, or
other price concessions provided under
the Medicare Coverage Gap Discount
Program under section 1860D–14A of
the Act.
(18) Sales to PBMs, including their
mail order pharmacy’s purchases.
(19) Rebates under the national rebate
agreement or a CMS-authorized State
supplemental rebate agreement paid to
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State Medicaid Agencies under section
1927 of the Act.
(20) Sales to hospices (inpatient and
outpatient).
(21) Sales to prisons.
(22) Direct sales to physicians.
(23) Direct sales to patients.
(24) Free goods, not contingent upon
any purchase requirement.
(25) Manufacturer coupons to a
consumer redeemed by the
manufacturer, agent, pharmacy or
another entity acting on behalf of the
manufacturer, but only to the extent that
the full value of the coupon is passed on
to the consumer and the pharmacy,
agent, or other entity does not receive
any price concession.
(26) Manufacturer vouchers.
(27) Prices negotiated under
Manufacturer-sponsored drug discount
card programs.
(28) Goods provided free of charge
under Manufacturer-sponsored patient
refund/rebate programs.
(29) Goods provided free of charge
under Manufacturer copayment
assistance programs and patient
assistance programs.
(d) Sales and associated discounts,
rebates, payments, or other transactions
included in AMP for inhalation,
infusion, instilled, implanted, or
injectable drugs (5i drugs) not generally
dispensed through a retail community
pharmacy. AMP for 5i covered
outpatient drugs indentified in
accordance with § 447.507 of this
subpart shall include sales and
associated discounts, rebates, payments
or other financial transactions to all
entities as specified in paragraph (b) of
this section, as well as the following
sales and associated discounts, rebates,
payments or other transactions:
(1) Sales to physicians.
(2) Sales to pharmacy benefit
managers where the PBM is not acting
as an insurer, including its mail order
pharmacy purchases.
(3) Sales to health maintenance
organizations (HMOs), including
managed care organizations (MCOs).
(4) Sales, discounts, or rebates paid
directly to insurers (except for rebates
under section 1927 of the Act and this
subpart).
(5) Sales to hospitals.
(6) Sales to clinics and outpatient
facilities (for example, surgical centers,
ambulatory care centers, dialysis
centers, mental health centers).
(7) Sales to mail order pharmacies.
(8) Sales to long-term care providers,
including nursing facility pharmacies,
nursing home pharmacies, long-term
care facilities, contract pharmacies for
the nursing facility where these sales
can be identified with adequate
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documentation, and other entities where
the drugs are dispensed through a
nursing facility pharmacy, such as
assisted living facilities.
(9) Sales to hospices.
(10) Sales to other manufacturers who
conduct business as a wholesaler or
retail community pharmacy.
(e) Further clarification of AMP
calculation.
(1) AMP includes cash discounts
except customary prompt pay discounts
extended to wholesalers, free goods that
are contingent on any purchase
requirement, volume discounts,
chargebacks that can be identified with
adequate documentation, incentives,
administrative fees, service fees,
distribution fees, and any other rebates,
discounts or other financial
transactions, other than rebates under
section 1927 of the Act, which reduce
the price received by the manufacturer
for drugs distributed to retail
community pharmacies.
(2) Quarterly AMP is calculated as a
weighted average of monthly AMPs in
that quarter.
(3) The manufacturer must adjust the
AMP for a rebate period if cumulative
discounts, rebates, or other
arrangements subsequently adjust the
prices actually realized, to the extent
that such cumulative discounts, rebates,
or other arrangements are not excluded
from the determination of AMP by
statute or regulation.
§ 447.505
Determination of best price.
(a) Definitions. For the purpose of this
section, the following definitions apply:
Best price means, for a single source
drug or innovator multiple source drug
of a manufacturer (including the lowest
price available to any entity for any
such drug of a manufacturer that is sold
under an NDA approved under section
505(c) of the FFDCA), the lowest price
available from the manufacturer during
the rebate period to any wholesaler,
retailer, provider, health maintenance
organization, nonprofit entity, or
governmental entity in the United States
in any pricing structure (including
capitated payments), in the same quarter
for which the AMP is computed.
Provider means a hospital, HMO,
including an MCO, or entity that treats
or provides coverage or services to
individuals for illnesses or injuries or
provides services or items in the
provision of health care.
(b) Prices included in best price.
Except for those prices identified in
paragraph (c) of this section, best price
for covered outpatient drugs includes all
prices and associated rebates, discounts,
or other transactions that adjust prices
either directly or indirectly.
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(c) Prices excluded from best price.
Best price excludes the following:
(1) Any prices on or after October 1,
1992, charged to the IHS, the DVA, a
State home receiving funds under 38
U.S.C. 1741, the DoD, or the PHS.
(2) Prices to 340B covered entities.
(i) Prices charged under the 340B drug
pricing program to a covered entity
described in section 1927(a)(5)(B) of the
Act; and
(ii) Any inpatient prices charged to
hospitals described in section
340B(a)(4)(L) of the PHSA.
(3) Any prices charged under the FSS
of the GSA.
(4) Any prices provided to a
designated State Pharmacy Assistance
Program (SPAP).
(5) Any depot prices (including
TRICARE) and single award contract
prices, as defined by the Secretary, of
any agency of the Federal government.
(6) Any prices charged which are
negotiated by a prescription drug plan
under Part D of title XVIII, by any MA–
PD plan under Part C of such title with
respect to covered Part D drugs, or by
a Qualified Retiree Prescription Drug
Plan (as defined in section 1860D–
22(a)(2) of the Act) for such drugs on
behalf of individuals entitled to benefits
under Part A or enrolled under Part B
of Medicare, or any discounts provided
by manufacturers under the Medicare
coverage gap discount program under
section 1860D–14A of the Act.
(7) Rebates under the national rebate
agreement or a CMS-authorized
supplemental rebate agreement paid to
State Medicaid Agencies under section
1927 of the Act.
(8) Prices negotiated under
manufacturer-sponsored drug discount
card programs.
(9) Manufacturer coupons to a
consumer redeemed by a consumer,
agent, pharmacy or another entity acting
on behalf of the manufacturer; but only
to the extent that the full value of the
coupon is passed on to the consumer
and the pharmacy, agent, or other entity
does not receive any price concession.
(10) Goods provided free of charge
under Manufacturer copayment
assistance programs and patient
assistance programs.
(11) Goods provided free of charge
under Manufacturer-sponsored patient
refund or rebate programs.
(12) Manufacturer vouchers.
(13) Free goods, not contingent upon
any purchase requirement.
(14) Reimbursement by the
manufacturer for recalled, damaged,
expired, or otherwise unsalable returned
goods, including, but not limited to,
reimbursement for the cost of the goods
and any reimbursement of costs
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associated with return goods handling
and processing, reverse logistics, and
drug destruction but only to the extent
that it only covers these costs.
(15) Nominal prices to certain entities
as set forth in § 447.508 of this subpart.
(16) Bona fide service fees paid by
manufacturers to wholesalers, retail
community pharmacies, or any other
entity that conducts business as a
wholesaler or a retail community
pharmacy, including but not limited to
inventory management fees, product
stocking allowances, and fees associated
with administrative agreements and
patient care programs (such as
medication compliance programs and
patient education programs), including
bona fide service fees paid to Group
Purchasing Organizations.
(17) PBM rebates, discounts, or other
financial transactions except their mail
order pharmacy’s purchases or where
such rebates, discounts, or other
financial transactions are designed to
adjust prices at the retail or provider
level.
(18) Sales outside the United States.
(d) Further clarification of best price.
(1) Best price is net of cash discounts,
free goods that are contingent on any
purchase requirement, volume
discounts, customary prompt pay
discounts, chargebacks, returns,
incentives, promotional fees,
administrative fees, service fees,
distribution fees, and any other
discounts or price reductions and
rebates, other than rebates under section
1927 of the Act, which reduce the price
available from the manufacturer.
(2) Best price must be determined on
a unit basis without regard to package
size, special packaging, labeling or
identifiers on the dosage form or
product or package.
(3) The manufacturer must adjust the
best price for a rebate period if
cumulative discounts, rebates, or other
arrangements subsequently adjust the
prices available from the manufacturer.
§ 447.506
Authorized generic drugs.
(a) Definitions. For the purpose of this
section, the following definitions apply:
Primary manufacturer means a
manufacturer that holds the NDA of the
authorized generic drug.
Secondary manufacturer of an
authorized generic drug means a
manufacturer that is authorized by the
primary manufacturer to sell the drug
but does not hold the NDA.
(b) Inclusion of authorized generic
drugs in AMP by a primary
manufacturer. The primary
manufacturer must include in its
calculation of AMP its sales of
authorized generic drugs that have been
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sold or licensed to a secondary
manufacturer, acting as a wholesaler, or
when the primary manufacturer holding
the NDA sells directly to a wholesaler.
(c) Inclusion of authorized generic
drugs in best price by a primary
manufacturer. A primary manufacturer
holding the NDA must include the best
price of an authorized generic drug in
its computation of best price for an
innovator multiple source drug during a
rebate period to any manufacturer,
wholesaler, retailer, provider, HMO,
non-profit entity, or governmental entity
in the United States, only when such
drugs are being sold by the
manufacturer holding the NDA.
(d) Inclusion of authorized generic in
AMP and best price by a secondary
manufacturer. The secondary
manufacturer of an authorized generic
drug must provide a rebate based on its
sales of authorized generics, and must
calculate AMP and best price, consistent
with the requirements specified in
§ 447.504 and § 447.505 of this subpart.
§ 447.507
Identification of 5i drugs.
A manufacturer must identify each
covered outpatient drug that is a 5i drug
that is not generally dispensed through
a retail community pharmacy.
(a) Identification of a 5i drug. A
manufacturer must use the list of FDA’s
Routes of Administration posted on the
CMS Web site to identify each covered
outpatient drug that qualifies as a 5i
drug.
(b) Not generally dispensed through a
retail community pharmacy. A
manufacturer must determine if the 5i
drug is not generally dispensed through
a retail community pharmacy based on
the percentage of sales to entities other
than retail community pharmacies.
(1) A 5i drug is not generally
dispensed through a retail community
pharmacy if 90 percent or more of the
sales of the 5i drug, during the reporting
period, were to entities other than retail
community pharmacies or wholesalers
for drugs distributed to retail
community pharmacies.
(2) A manufacturer is responsible for
determining whether a 5i drug is not
generally dispensed through a retail
community pharmacy on a monthly and
quarterly basis.
§ 447.508 Exclusion from best price of
certain sales at a nominal price.
(a) Exclusion from best price. Sales of
covered outpatient drugs by a
manufacturer at nominal prices are
excluded from best price when
purchased by the following entities:
(1) A covered entity as described in
section 340B(a)(4) of the PHSA.
(2) An ICF/MR providing services as
set forth in § 440.150 of this chapter.
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(3) A State-owned or operated nursing
facility providing services as set forth in
§ 440.150 of this chapter.
(4) A public or non-profit entity or
facility at an institution of higher
learning whose primary purpose is to
provide health care services to students
of that institution, and provide family
planning services described under
section of 1001(a) of PHSA, 42 U.S.C.
300.
(5) An entity that—
(i) Is described in section 501(c)(3) of
the Internal Revenue Code of 1986 and
exempt from tax under section 501(a) of
that Act or is State-owned or operated;
and
(ii) Is providing the same services to
the same type of population as a
covered entity described in section
340B(a)(4) of the PHSA but is not in
receipt of grant funds under that Act.
(b) Nonapplication. This restriction
does not apply to sales by a
manufacturer of covered outpatient
drugs that are sold under a master
agreement under 38, U.S.C. 8126.
(c) Rule of construction. Nothing in
this subpart is construed to alter any
existing statutory or regulatory
prohibition on services for an entity
described paragraph (a) of this section,
including the prohibition set forth in
section 1008 of the PHSA.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
§ 447.509
Medicaid drug rebates.
(a) Determination of rebate amount.
(1) Basic rebate for single source
drugs and innovator multiple source
drugs. The amount of basic rebate for
each dosage form and strength of a
single source drug or an innovator
multiple source drug is equal to the
product of—
(i) The total number of units of each
dosage form and strength paid for under
the State plan in the rebate period (as
reported by the State); and
(ii) The greater of—
(A) The difference between the AMP
and the best price for the dosage form
and strength of the drug; or
(B) The AMP for the dosage form and
strength of the drug multiplied by one
of the following percentages—
(1) For a clotting factor, 17.1 percent;
(2) For a drug approved by the FDA
exclusively for pediatric indications,
17.1 percent; or
(3) For all other single source drugs
and innovator multiple source drugs,
23.1 percent.
(2) Additional rebate for single source
and innovator multiple source drugs. In
addition to the basic rebate described in
paragraph (a)(1) of this section, for each
dosage form and strength of a single
source drug or an innovator multiple
source drug, the rebate amount will be
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increased by an amount equal to the
product of—
(i) The total number of units of such
dosage form and strength paid for under
the State plan in the rebate period; and
(ii) The amount, if any, by which—
(A) The AMP for the dosage form and
strength of the drug for the period
exceeds:
(B) The base date AMP for such
dosage form and strength, increased by
the percentage by which the consumer
price index for all urban consumers
(United States city average) for the
month before the month in which the
rebate period begins exceeds such index
associated with the base date AMP of
the drug.
(3) Total rebate. The total rebate
amount for single source drugs and
innovator multiple source drugs is equal
to the basic rebate amount plus the
additional rebate amount, if any.
(4) Treatment of new formulations.
(i) In the case of a drug that is a line
extension of a single source drug or an
innovator multiple source drug that is
an oral solid dosage form, the rebate
obligation is the amount computed
under paragraphs (a)(1) through (a)(3) of
this section for such new drug or, if
greater, the product of all of the
following:
(A) The AMP of the line extension of
a single source drug or an innovator
multiple source drug that is an oral
solid dosage form.
(B) The highest additional rebate
(calculated as a percentage of AMP)
under this section for any strength of the
original single source drug or innovator
multiple source drug.
(C) The total number of units of each
dosage form and strength of the line
extension product paid for under the
State plan in the rebate period (as
reported by the State).
(ii) The term ‘‘line extension’’ means,
with respect to a drug, a new
formulation of the drug, such as an
extended release product.
(iii) Identification of line extension
drugs.
(A) The FDA’s list of Chemical Types,
listed in FDA Drugs in FDA’s database,
is used to identify the line extension
drug and the initial brand name listed
drug.
(B) Chemical Type 2, new ester, new
salt, or other noncovalent derivative;
Chemical Type 3, new formulation;
Chemical Type 4, new combination; and
Chemical Type 6, new indication are
determined to be line extension drugs.
(C) Chemical Type 1, new molecular
entity, represents the initial brand name
listed drug.
(5) Limit on rebate. In no case will the
total rebate amount exceed 100 percent
of the AMP of the drug.
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(6) Rebate for noninnovator multiple
source drugs. The amount of the rebate
for each dosage form and strength of a
noninnovator multiple source drug will
be equal to the product of—
(i) The total number of units of such
dosage form and strength for which
payment was made under the State plan
for the rebate period; and
(ii) The AMP for the dosage form and
strength for the rebate period multiplied
by 13 percent.
(b) Rebates for drugs dispensed
through Medicaid managed care
organizations (MCOs).
(1) Manufacturers participating in the
Medicaid drug rebate program will pay
rebates for covered outpatient drugs
dispensed to individuals enrolled in
Medicaid MCOs if the MCO is
contractually required to provide such
drugs.
(2) Manufacturers are exempt from the
requirement in paragraph (b)(1) of this
section if such drugs are:
(i) Dispensed by health maintenance
organizations including MCOs that
contract under section 1903(m) of the
Act.
(ii) Discounted under section 340B of
the PHSA.
(3) Within 30 days of the end of each
quarter, a Medicaid MCO that
contractually provides covered
outpatient drugs dispensed to Medicaid
beneficiaries must report to the State the
following data:
(i) MCO identifier.
(ii) National Drug Code.
(iii) Period covered.
(iv) Product FDA list name.
(v) Total units.
(vi) Total number of prescriptions.
(vii) Amount reimbursed.
(c) Federal offset of rebates. States
must remit to the Federal government
the amount of the savings resulting from
the increases in the rebate percentages.
(1) For single source or innovator
multiple source drugs other than blood
clotting factors and drugs approved by
the FDA exclusively for pediatric
indications:
(i) If AMP minus best price is less
than or equal to AMP times 15.1
percent, then the offset amount is the
full 8 percent of AMP (the difference
between 23.1 percent of AMP and 15.1
percent of AMP).
(ii) If AMP minus best price is greater
than AMP times 15.1 percent but less
than AMP times 23.1 percent, then the
offset amount is the difference between
AMP times 23.1 percent and AMP
minus best price.
(iii) If AMP minus best price is equal
to or greater than AMP times 23.1
percent, then there is no offset amount.
(2) For single source or innovator
multiple source drugs that are clotting
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factors and drugs approved by the FDA
exclusively for pediatric indications that
are subject to a rebate percentage of 17.1
percent of AMP:
(i) If AMP minus best price is less
than or equal to AMP times 15.1
percent, then the offset amount is the
full 2 percent of AMP (the difference
between 17.1 percent of AMP and 15.1
percent of AMP).
(ii) If AMP minus best price is greater
than AMP times 15.1 percent but less
than AMP times 17.1 percent, then the
offset amount is the difference between
AMP times 17.1 percent and AMP
minus best price.
(iii) If AMP minus best price is equal
to or greater than AMP times 17.1
percent, then there is no offset amount.
(3) For a drug that is a line extension
of a single source or innovator multiple
source drug that is an oral solid dosage
form, the offset amount is the difference
between the URA calculation for the
drug calculated based on the applicable
rebate percentage in section 1927 of the
Act prior to the Affordable Care Act and
the calculation of the URA for the line
extension drug, if greater, in accordance
with the Affordable Care Act.
(4) For noninnovator multiple source
drugs, the offset amount is equal to 2
percent of the AMP (the difference
between 13 percent of AMP and 11
percent of AMP).
srobinson on DSK4SPTVN1PROD with PROPOSALS2
§ 447.510 Requirements for
manufacturers.
(a) Quarterly reports. A manufacturer
must report product and pricing
information for covered outpatient
drugs to CMS not later than 30 days
after the end of the rebate period. The
quarterly pricing report must include
the following:
(1) AMP, calculated in accordance
with § 447.504 of this subpart.
(2) Best price, calculated in
accordance with § 447.505 of this
subpart.
(3) Customary prompt pay discounts,
which are reported as an aggregate
dollar amount for each covered
outpatient drug at the nine-digit NDC
level, provided to all wholesalers in the
rebate period.
(4) Prices that fall within the nominal
price exclusion, which are reported as
an aggregate dollar amount and include
all sales of single source and innovator
multiple source drugs to the entities
listed in § 447.508(a) of this subpart for
the rebate period.
(5) A manufacturer that fails to submit
a quarterly AMP to CMS for a product
by the thirtieth day after the end of each
rebate period will be subject to civil
monetary penalties for each product not
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reported on the thirty-first day of
$10,000 per day per drug.
(b) Reporting revised quarterly AMP,
best price, customary prompt pay
discounts, or nominal prices.
(1) A manufacturer must report to
CMS any revision to AMP, best price,
customary prompt pay discounts, or
nominal prices for a period not to
exceed 12 quarters from the quarter in
which the data were due. Any revision
request that exceeds 12 quarters will not
be considered, except for the following
reasons:
(i) The change is a result of the drug
category change or a market date
change.
(ii) The change is an initial
submission for a product.
(iii) The change is due to termination
of a manufacturer from the MDR
program for failure to submit pricing
data and must submit pricing data to
reenter the program.
(iv) The change is due to a technical
correction, that is, not based on any
changes in sales transactions or pricing
adjustments from such transactions.
(v) The change is to address specific
underpayments to States, or potential
liability regarding those underpayments,
as required by CMS or court order, or
pursuant to an internal investigation, or
an OIG or DOJ investigation.
(2) A manufacturer may report
revisions to AMP, best price, customary
prompt pay discounts, or nominal
prices for a period in excess of 12
quarters from the quarter in which the
data were due based on the approval of
CMS for good cause.
(3) A manufacturer must report
revisions to AMP within the 12-quarter
time period, except when the revision
would be solely as a result of data
pertaining to lagged price concessions.
(c) Base date AMP report.
(1) Reporting period. A manufacturer
may report a revised DRA base date
AMP to CMS within the first four full
calendar quarters following July 17,
2007.
(2) Recalculation of the DRA base
date AMP.
(i) A manufacturer’s recalculation of
the DRA base date AMP must only
reflect the revisions to AMP as provided
for in § 447.504 of this subpart.
(ii) A manufacturer may choose to
recalculate the DRA base date AMP on
a product-by-product basis.
(iii) A manufacturer must use actual
and verifiable pricing records in
recalculating the DRA base date AMP.
(3) Reporting a revised Affordable
Care Act base date AMP. A
manufacturer may report a revised
Affordable Care Act base date AMP to
CMS within the first four full calendar
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quarters following [publication date of
the final rule].
(4) Recalculation of the Affordable
Care Act base date AMP.
(i) A manufacturer’s recalculation of
the Affordable Care Act base date AMP
must only reflect the revisions to AMP
as provided for in § 447.504 of this
subpart.
(ii) A manufacturer may choose to
recalculate the Affordable Care Act base
date AMP on a product-by-product
basis.
(iii) A manufacturer must use actual
and verifiable pricing records in
recalculating the Affordable Care Act
base date AMP.
(d) Monthly AMP.
(1) Definition. Monthly AMP means
the AMP that is calculated on a monthly
basis. A manufacturer must submit a
monthly AMP to CMS not later than 30
days after the last day of each prior
month.
(2) Calculation of monthly AMP.
Monthly AMP is calculated based on
§ 447.504 of this subpart, except the
period covered is based on monthly, as
opposed to quarterly, sales.
(i) The monthly AMP is calculated
based on the weighted average of prices
for all the manufacturer’s package sizes
of each covered outpatient drug sold by
the manufacturer during a month.
(ii) It is calculated as net sales divided
by number of units sold, excluding
goods or any other items specifically
excluded in the statute or regulations.
Monthly AMP is calculated based on the
best data available to the manufacturer
at the time of submission.
(iii) In calculating monthly AMP, a
manufacturer must estimate the impact
of its lagged price concessions using a
12-month rolling percentage to estimate
the value of those discounts.
(3) Timeframe for reporting revised
monthly AMP. A manufacturer must
report to CMS revisions to monthly
AMP for a period not to exceed 36
months from the month in which the
data were due, except as allowed in
paragraph (b)(1) of this section.
(4) Exception. A manufacturer must
report revisions to monthly AMP within
the 36-month time period, except when
the revision would be solely as a result
of data pertaining to lagged price
concessions.
(5) Terminated products. A
manufacturer must not report a monthly
AMP for a terminated product beginning
with the first month after the expiration
date of the last lot sold.
(6) Monthly AMP units. A
manufacturer must report the total
number of units that are used to
calculate the monthly AMP in the same
unit type as used to compute the AMP
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to CMS not later than 30 days after the
last day of each month.
(7) Failure to report product
information, monthly AMP and AMP
units. A manufacturer that fails to
submit a monthly AMP and the total
number of units that are used to
calculate that monthly AMP to CMS for
a product by the thirtieth day after the
last day of each month will be subject
to civil monetary penalty for each
product not reported on the thirty-first
day of $10,000 per drug per day.
(e) Certification of pricing reports.
Each report submitted under paragraphs
(a) through (d) of this section must be
certified by one of the following:
(1) The manufacturer’s chief executive
officer (CEO).
(2) The manufacturer’s chief financial
officer (CFO).
(3) An individual other than a CEO or
CFO, who has authority equivalent to a
CEO or a CFO; or
(4) An individual with the directly
delegated authority to perform the
certification on behalf of an individual
described in paragraphs (e)(1) through
(e)(3) of this section.
(f) Recordkeeping requirements.
(1) A manufacturer must retain
records (written or electronic) for 10
years from the date the manufacturer
reports data to CMS for that rebate
period.
(i) The records must include these
data and any other materials from which
the calculations of the AMP, the best
price, customary prompt pay discounts,
and nominal prices are derived,
including a record of any assumptions
made in the calculations.
(ii) The 10-year timeframe applies to
a manufacturer’s quarterly and monthly
submissions of pricing data, as well as
any revised pricing data subsequently
submitted to CMS.
(2) A manufacturer must retain
records beyond the 10-year period if all
of the following circumstances exist:
(i) The records are the subject of an
audit, or of a government investigation
related to pricing data that are used in
AMP, best price, customary prompt pay
discounts, or nominal prices of which
the manufacturer is aware.
(ii) The audit findings or investigation
related to the AMP, best price,
customary prompt pay discounts, or
nominal price have not been resolved.
(g) Data reporting format. All product
and pricing data, whether submitted on
a quarterly or monthly basis, must be
submitted to CMS in an electronic
format designated by CMS.
§ 447.511
Requirements for States.
(a) Invoices submitted to participating
drug manufacturers. Within 60 days of
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the end of each quarter, the State must
bill participating drug manufacturers an
invoice which includes, at a minimum,
all of the following data:
(1) The State code.
(2) National Drug Code.
(3) Period covered.
(4) Product FDA list name.
(5) Unit rebate amount.
(6) Units reimbursed.
(7) Rebate amount claimed.
(8) Number of prescriptions.
(9) Medicaid amount reimbursed.
(10) Non-Medicaid amount
reimbursed.
(11) Total amount reimbursed.
(b) Data submitted to CMS. On a
quarterly basis, the State must submit
drug utilization data to CMS, which will
be the same information as submitted to
the manufacturers.
(c) State that has participating
Medicaid Managed Care Organizations
(MCO). A State that has participating
Medicaid Managed Care Organizations
(MCO), which includes covered
outpatient drugs in its contracts with
the MCOs, must report data described in
paragraph (a) of this section for covered
outpatient drugs dispensed to
individuals eligible for medical
assistance who are enrolled with the
MCO and for which the MCO is
required under contract for coverage of
such drugs under section 1903 of the
Act. This data must be identified
separately from the data pertaining to
drugs that the State reimburses on a feefor-service basis.
§ 447.512 Drugs: Aggregate upper limits of
payment.
(a) Multiple source drugs. Except for
brand name drugs that are certified in
accordance with paragraph (c) of this
section, the agency payment for
multiple source drugs must not exceed,
in the aggregate, the amount that would
result from the application of the
specific limits established in accordance
with § 447.514 of this subpart. If a
specific limit has not been established
under § 447.514 of this subpart, then the
rule for ‘‘other drugs’’ set forth in
paragraph (b) of this section applies.
(b) Other drugs. The agency payments
for brand name drugs certified in
accordance with paragraph (c) of this
section and drugs other than multiple
source drugs for which a specific limit
has been established under § 447.514 of
this subpart must not exceed, in the
aggregate, payment levels that the
agency has determined by applying the
lower of the following:
(1) AAC plus a professional
dispensing fee established by the
agency; or
(2) Providers’ usual and customary
charges to the general public.
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(c) Certification of brand name drugs.
(1) The upper limit for payment for
multiple source drugs for which a
specific limit has been established
under § 447.514 of this subpart does not
apply if a physician certifies in his or
her own handwriting (or by an
electronic alternative means approved
by the Secretary) that a specific brand is
medically necessary for a particular
beneficiary.
(2) The agency must decide what
certification form and procedure are
used.
(3) A check off box on a form is not
acceptable but a notation like ‘‘brand
necessary’’ is allowable.
(4) The agency may allow providers to
keep the certification forms if the forms
will be available for inspection by the
agency or HHS.
§ 447.514
drugs.
Upper limits for multiple source
(a) Establishment and issuance of a
listing.
(1) CMS will establish and issue
listings that identify and set upper
limits for multiple source drugs
available for purchase by retail
community pharmacies on a nationwide
basis that the FDA has rated at least
three drug products as pharmaceutically
and therapeutically equivalent in its
most current edition of ‘‘Approved Drug
Products with Therapeutic Equivalence
Evaluations’’ (including supplements or
in successor publications). Only
pharmaceutically and therapeutically
equivalent formulations will be used to
determine such limit, and such limit
will only be applied to those
therapeutically equivalent drug
products
(2) CMS publishes the list of multiple
source drugs for which upper limits
have been established and any revisions
to the list in Medicaid Program
issuances.
(b) Specific upper limits. The agency’s
payments for multiple source drugs
identified and listed periodically by
CMS in Medicaid Program issuances
must not exceed, in the aggregate, prior
to the application of any Federal or
State drug rebate considerations,
payment levels determined by applying
for each drug entity a professional
dispensing fee established by the State
agency plus an amount established by
CMS that is equal to 175 percent of the
weighted average of the most recently
reported monthly AMP using
manufacturer submitted utilization data.
(c) Ensuring a drug is for sale
nationally. To assure that a multiple
source drug is for sale nationally, CMS
will consider the following additional
criteria:
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(1) The AMP of a terminated NDC will
not be used to set the Federal upper
limit (FUL) beginning with the first day
of the month after the termination date
reported by the manufacturer to CMS.
(2) The monthly AMP units data will
be used to calculate the weighted
average of monthly AMPs for all
multiple source drugs to establish the
FUL.
(d) The FUL will be applied as an
aggregate upper limit.
§ 447.516 Upper limits for drugs furnished
as part of services.
The upper limits for payment for
prescribed drugs in this subpart also
apply to payment for drugs provided as
part of skilled nursing facility services
and intermediate care facility services
and under prepaid capitation
arrangements.
§ 447.518 State plan requirements,
findings, and assurances.
srobinson on DSK4SPTVN1PROD with PROPOSALS2
(a) State plan. The State plan must
describe comprehensively the agency’s
payment methodology for prescription
drugs, including the agency’s payment
methodology for drugs dispensed by all
of the following:
(1) A covered entity described in
section 1927(a)(5)(B) of the Act.
(2) A contract pharmacy under
contract with a covered entity described
in section 1927(a)(5)(B) of the Act.
(3) An Indian Health Service, tribal
and urban Indian pharmacy.
(b) Findings and assurances. Upon
proposing significant State plan changes
in payments for prescription drugs, and
at least annually for multiple source
drugs and triennially for all other drugs,
the agency must make the following
findings and assurances:
(1) Findings. The agency must make
the following separate and distinct
findings:
(i) In the aggregate, its Medicaid
expenditures for multiple source drugs,
identified and listed in accordance with
§ 447.514(a) of this subpart, are in
accordance with the upper limits
specified in § 447.514(b) of this subpart.
(ii) In the aggregate, its Medicaid
expenditures for all other drugs are in
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accordance with § 447.512 of this
subpart.
(2) Assurances. The agency must
make assurances satisfactory to CMS
that the requirements set forth in
§ 447.512 and § 447.514 of this subpart
concerning upper limits and in
paragraph (b)(1) of this section
concerning agency findings are met.
(c) Recordkeeping. The agency must
maintain and make available to CMS,
upon request, data, mathematical or
statistical computations, comparisons,
and any other pertinent records to
support its findings and assurances.
(d) Data requirements. When
proposing changes to the ingredient cost
reimbursement or professional
dispensing fee reimbursement, States
must provide adequate data, including,
but not limited to, a State or national
survey of retail pharmacy providers or
other reliable data which reflects the
pharmacy’s actual or average acquisition
cost as a base to support any proposed
change in ingredient cost
reimbursement. States must submit to
CMS the proposed change in
reimbursement and the supporting data
through a State plan amendment
through the formal review process.
§ 447.520 FFP: Conditions relating to
physician-administered drugs.
(a) No FFP is available for physicianadministered drugs for which a State
has not required the submission of
claims using codes that identify the
drugs sufficiently for the State to bill a
manufacturer for rebates.
(1) As of January 1, 2006, a State must
require providers to submit claims for
single source, physician-administered
drugs using Healthcare Common
Procedure Coding System codes or NDC
numbers to secure rebates.
(2) As of January 1, 2007, a State must
require providers to submit claims for
physician-administered single source
drugs and the 20 multiple source drugs
identified by the Secretary using NDC
numbers.
(b) As of January 1, 2008, a State must
require providers to submit claims for
the 20 multiple source physicianadministered drugs identified by the
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Secretary as having the highest dollar
value under the Medicaid Program
using NDC numbers to secure rebates.
(c) A State that requires additional
time to comply with the requirements of
this section may apply to the Secretary
for an extension.
§ 447.522 Optional coverage of
investigational drugs and other drugs not
subject to rebate.
(a) Medicaid coverage of
investigational drugs may be provided
at State option under section 1905(a)(12)
of the Act when such drug has been
indicated by the FDA for human trials.
(b) A State agency electing to provide
coverage of an investigational drug must
include in its State plan a description of
the coverage and payment for such drug.
(c) The State plan must indicate that
any payments for investigational drugs
will be reimbursed in accordance with
the FDA final rules at 21 CFR parts 312
and 316 if they are to be eligible to
receive FFP for these drugs.
(d) Medicaid coverage of other drugs
may be provided at State option under
section 1905(a)(12) of the Act provided
that they are not covered outpatient
drugs or fail to be listed electronically
with the FDA.
(e) Investigational drugs and other
drugs are not subject to the rebate
requirements of section 1927 of the Act
provided they do not meet the
definition of a covered outpatient drug
as set forth in section 1927(k) of the Act.
Authority: Catalog of Federal Domestic
Assistance Program No. 93.778, Medical
Assistance Program.
Dated: March 16, 2011.
Donald M. Berwick,
Administrator, Centers for Medicare &
Medicaid Services.
Approved: August 16, 2011.
Kathleen Sebelius,
Secretary.
Editorial Note: This document was
received at the Office of the Federal Register
on January 26, 2012.
[FR Doc. 2012–2014 Filed 1–27–12; 11:15 am]
BILLING CODE 4120–01–P
E:\FR\FM\02FEP2.SGM
02FEP2
Agencies
[Federal Register Volume 77, Number 22 (Thursday, February 2, 2012)]
[Proposed Rules]
[Pages 5318-5367]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-2014]
[[Page 5317]]
Vol. 77
Thursday,
No. 22
February 2, 2012
Part II
Department of Health and Human Services
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Centers for Medicare & Medicaid Services
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42 CFR Part 447
Medicaid Program; Covered Outpatient Drugs; Proposed Rule
Federal Register / Vol. 77 , No. 22 / Thursday, February 2, 2012 /
Proposed Rules
[[Page 5318]]
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DEPARTMENT OF HEALTH AND HUMAN SERVICES
Centers for Medicare & Medicaid Services
42 CFR Part 447
[CMS-2345-P]
RIN 0938-AQ41
Medicaid Program; Covered Outpatient Drugs
AGENCY: Centers for Medicare & Medicaid Services (CMS), HHS.
ACTION: Proposed rule.
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SUMMARY: This proposed rule would revise requirements pertaining to
Medicaid reimbursement for covered outpatient drugs to implement
provisions of the Patient Protection and Affordable Care Act of 2010,
as amended by the Health Care and Education Reconciliation Act of 2010
(collectively known as the Affordable Care Act). This proposed rule
would also revise other requirements related to covered outpatient
drugs, including key aspects of Medicaid coverage, payment, and the
drug rebate program. Therefore, we are proposing to amend 42 CFR part
447, subpart I to implement specific provisions of the Affordable Care
Act.
DATES: To be assured consideration, comments must be received at one of
the addresses provided below, no later than 5 p.m. on April 2, 2012.
ADDRESSES: In commenting, please refer to file code CMS-2345-P. Because
of staff and resource limitations, we cannot accept comments by
facsimile (FAX) transmission.
You may submit comments in one of four ways (please choose only one
of the ways listed):
1. Electronically. You may submit electronic comments on this
regulation to https://www.regulations.gov. Follow the instructions under
the ``More Search Options'' tab.
2. By regular mail. You may mail written comments to the following
address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-2345-P, P.O. Box 8016, Baltimore, MD
21244-8016.
Please allow sufficient time for mailed comments to be received
before the close of the comment period.
3. By express or overnight mail. You may send written comments to
the following address ONLY:
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Attention: CMS-2345-P, Mail Stop C4-26-05, 7500
Security Boulevard, Baltimore, MD 21244-1850.
4. By hand or courier. If you prefer, you may deliver (by hand or
courier) your written comments before the close of the comment period
to either of the following addresses:
a. For delivery in Washington, DC--
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, Room 445-G, Hubert H. Humphrey Building, 200
Independence Avenue SW., Washington, DC 20201.
(Because access to the interior of the Hubert H. Humphrey Building
is not readily available to persons without Federal government
identification, commenters must leave their comments in the CMS drop
slots located in the main lobby of the building. A stamp-in clock is
available for persons wishing to retain a proof of filing by stamping
in and retaining an extra copy of the comments being filed. The
comments delivered must also be stamped in to verify timeliness of
submission.)
b. For delivery in Baltimore, MD--
Centers for Medicare & Medicaid Services, Department of Health and
Human Services, 7500 Security Boulevard, Baltimore, MD 21244-1850.
If you intend to deliver your comments to the Baltimore address,
please call telephone number (410) 786-7195 in advance to schedule your
arrival with one of our staff members.
Comments mailed to the addresses indicated as appropriate for hand
or courier delivery may be delayed and if received after the comment
period closes may not be considered.
Submission of comments on paperwork requirements. You may submit
comments on this document's paperwork requirements by following the
instructions at the end of the ``Collection of Information
Requirements'' section in this document.
For information on viewing public comments, see the beginning of
the SUPPLEMENTARY INFORMATION section.
FOR FURTHER INFORMATION CONTACT:
Angel Davis, (410) 786-4693, and Meagan Khau, (410) 786-1357, for
issues related to rebates for line extensions.
Lisa Ferrandi, (410) 786-5445, for issues related to the Collection of
Information Requirements.
Joseph Fine, (410) 786-2128, for issues related to the determination of
Best Price, definition of covered outpatient drug and rebates for drugs
dispensed by Medicaid managed care organizations.
Christine Hinds, (410) 786-4578, Kimberly Howell, (410) 786-6762, Terry
Simananda, (410) 786-8144, or Wendy Tuttle, (410) 786-8690, for issues
related to the determination of Average Manufacturer Price (AMP).
Meagan Khau, (410) 786-1357, for issues related to the offset of
rebates.
Madlyn Kruh, (410) 786-3239, for issues related to authorized generics,
nominal price, investigational drugs, and the coverage of tobacco
cessation drugs under the Medicaid State Plan.
Bernadette Leeds, (410) 786-9463, for issues related to drug rebates.
Gail Sexton, (410) 786-4583, for issues related to Federal upper
limits.
Marge Watchorn, (410) 786-4361, for issues related to the Regulatory
Impact Analysis.
Wendy Tuttle, (410) 786-8690, for all other inquiries.
SUPPLEMENTARY INFORMATION:
Inspection of Public Comments: All comments received before the
close of the comment period are available for viewing by the public,
including any personally identifiable or confidential business
information that is included in a comment. We post all comments
received before the close of the comment period on the following Web
site as soon as possible after they have been received: https://www.regulations.gov. Follow the search instructions on that Web site to
view public comments.
Comments received timely will also be available for public
inspection as they are received, generally beginning approximately 3
weeks after publication of a document, at the headquarters of the
Centers for Medicare & Medicaid Services, 7500 Security Boulevard,
Baltimore, Maryland 21244, Monday through Friday of each week from 8:30
a.m. to 4 p.m. To schedule an appointment to view public comments,
phone 1-(800) 743-3951.
I. Background
A. Introduction
Under the Medicaid program, States may provide coverage of
outpatient drugs as an optional service under section 1905(a)(12) of
the Social Security Act (the Act). Section 1903(a) of the Act provides
for Federal financial participation (FFP) in State expenditures for
these drugs. In general, in order for payment to be made available
under section 1903 for covered outpatient drugs, manufacturers must
enter into a Medicaid drug rebate agreement as set forth in section
1927(a)
[[Page 5319]]
of the Act. Section 1927 of the Act provides specific requirements for
rebate agreements, drug pricing submission and confidentiality
requirements, the formulas for calculating rebate payments, and
requirements for States for covered outpatient drugs.
This proposed rule would implement changes to section 1927 of the
Act made by sections 2501, 2503, and 3301(d)(2) of the Patient
Protection and Affordable Care Act of 2010 (Pub. L. 111-148, enacted on
March 23, 2010), and sections 1101(c) and 1206 of the Health Care and
Education Reconciliation Act of 2010 (HCERA) (Pub. L. 111-152, enacted
on March 30, 2010), (collectively known as the Affordable Care Act). It
would also implement changes to section 1927 of the Act as set forth in
section 202 of Pub. L. 111-226, enacted on August 10, 2010 (referred to
as the Education Jobs and Medicaid Funding Act). This proposed rule
would implement other miscellaneous provisions pertaining to covered
outpatient drugs. It would implement changes to section 1927 of the Act
as set forth in section 221 of Division F, Title II, of the Omnibus
Appropriations Act, 2009, (Pub. L. 111-8, enacted on March 11, 2009).
It would also codify other requirements in section 1927 of the Act
pertaining to the Medicaid drug rebate (MDR) program and revise certain
regulatory provisions presently codified at 42 CFR part 447, subpart I
and make other changes concerning rebate requirements. As discussed
below, these proposed revisions are consistent with the Secretary's
authority set forth in section 1102 of the Act to publish regulations
that are necessary to the efficient administration of the Medicaid
program.
B. Changes Made by the Affordable Care Act
Section 2501(a) of the Affordable Care Act amended section 1927(c)
of the Act by increasing the minimum rebate percentage for most single
source and innovator multiple source drugs from 15.1 percent of the
average manufacturer price (AMP) to 23.1 percent of AMP. Section
2501(a) of the Affordable Care Act also amended section 1927(c) of the
Act by establishing a minimum rebate percentage of 17.1 percent of AMP
for certain single source and innovator multiple source clotting
factors and single source and innovator multiple source drugs approved
by the Food and Drug Administration (FDA) exclusively for pediatric
indications. Section 2501(a) of the Affordable Care Act also added
section 1927(b)(1)(C) to the Act to make changes to the non-Federal
share of rebates by specifying that the amounts attributable to the
increased rebate percentages be remitted to the Federal government. The
amendments made by section 2501(a) of the Affordable Care Act were
effective January 1, 2010.
Section 2501(b) of the Affordable Care Act amended section 1927(c)
of the Act by increasing the rebate percentage for noninnovator
multiple source drugs from 11 percent of AMP to 13 percent of AMP,
effective January 1, 2010.
Section 2501(c) of the Affordable Care Act amended section 1903(m)
of the Act by specifying new conditions for managed care organization
(MCO) contracts, including that covered outpatient drugs dispensed to
individuals eligible for medical assistance under Title XIX of the Act
who are enrolled with a Medicaid MCO shall be subject to the same
rebate required by the rebate agreement authorized under section 1927
of the Act. The Affordable Care Act also amended section 1903(m) of the
Act to establish that MCO capitation rates shall be based on actual
cost experience related to rebates and subject to Federal regulations
at Sec. 438.6 regarding actuarial soundness of capitation payments.
The legislation also provided that MCOs are responsible for reporting
to the State certain utilization data and such other data as the
Secretary determines necessary for the State to access the rebates
authorized by this provision.
Section 2501(c) of the Affordable Care Act also made conforming
amendments to section 1927(b) of the Act by requiring manufacturers
that participate in the MDR program to provide rebates for drugs
dispensed to individuals enrolled with a MCO, if the MCO is responsible
for coverage of such drugs. It also amended section 1927(b) of the Act
by requiring States to include information on drugs paid for by
Medicaid MCOs under the State plan during the rebate period when
requesting rebates from manufacturers. Finally, section 2501(c)
modified section 1927(j)(1) of the Act to specify that covered
outpatient drugs are not subject to the rebate requirements if such
drugs are both subject to discounts under section 340B of the Public
Health Service Act (PHSA) and dispensed by health maintenance
organizations (HMOs), including Medicaid MCOs. The amendments made by
section 2501(c) were effective March 23, 2010.
Section 2501(d) of the Affordable Care Act, as revised by section
1206(a) of HCERA, added a new subparagraph (C) to section 1927(c)(2) of
the Act, effective for drugs paid for by a State on or after January 1,
2010. This provision modifies the unit rebate amount (URA) calculation
for a drug that is a line extension (new formulation) of a single
source or innovator multiple source drug that is an oral solid dosage
form.
Section 2501(e) of the Affordable Care Act amended section
1927(c)(2) of the Act by adding a new subparagraph (D) and establishing
a maximum on the total rebate amount for each single source or
innovator multiple source drug at 100 percent of AMP, effective January
1, 2010.
Section 2501(f) of the Affordable Care Act made conforming
amendments to section 340B of the Public Health Service Act, which are
not addressed in this proposed rule.
Section 2503(a) of the Affordable Care Act amended section 1927(e)
of the Act by revising the Federal upper reimbursement limit to be no
less than 175 percent of the weighted average (determined on the basis
of utilization) of the most recently reported monthly AMPs for
pharmaceutically and therapeutically equivalent multiple source drug
products that are available for purchase by retail community pharmacies
on a nationwide basis. Additionally, it specifies that the Secretary
shall implement a smoothing process for AMP which shall be similar to
the smoothing process used in determining the average sales price (ASP)
of a drug or biological under Medicare Part B. It amended section
1927(k) of the Act by revising the definition of AMP to mean the
average price paid to the manufacturer for the drug in the United
States by wholesalers for drugs distributed to retail community
pharmacies and retail community pharmacies that purchase drugs directly
from the manufacturer.
It also amended the definition of multiple source drug to specify,
in part, that a covered outpatient drug qualifies as a multiple source
drug if at least one other therapeutically equivalent drug product is
sold or marketed in the United States, as opposed to in a State, during
the rebate period. It added to section 1927(k) of the Act definitions
of retail community pharmacy and wholesaler for purposes of section
1927 of the Act.
Section 2503(b) of the Affordable Care Act amended section 1927(b)
of the Act by establishing a requirement that manufacturers report, not
later than 30 days after the last day of each month of a rebate period
under the agreement, on the manufacturer's total number of units that
are used to calculate the monthly AMP for each covered outpatient drug.
It also amended the preexisting requirement that the Secretary disclose
[[Page 5320]]
AMPs to instead require the Secretary to post, on a Web site accessible
to the public, the weighted average of the most recently reported
monthly AMPs and the average retail survey price determined for each
multiple source drug in accordance with section 1927(f) of the Act.
Section 2503(c) of the Affordable Care Act amended section 1927(f)
of the Act by clarifying that the survey of retail prices described in
such subsection applies to retail community pharmacies.
Section 2503(d) of the Affordable Care Act specified that the
amendments made by section 2503 of the Affordable Care Act were
effective October 1, 2010. Section 2503(d) of the Affordable Care Act
further specified that the amendments made by section 2503 shall take
effect without regard to whether final regulations to carry out such
amendments have been issued by October 1, 2010.
Section 3301(d)(2) of the Affordable Care Act included a conforming
amendment to the definition of ``best price'' under Medicaid at section
1927(c)(1)(C) of the Act. This amendment provides that any discounts
provided by manufacturers under the Medicare coverage gap discount
program under section 1860D-14A of the Act are exempt from a
manufacturer's best price calculation, effective for drugs dispensed on
or after July 1, 2010.
Section 7101(a) of the Affordable Care Act expanded the drug
discount program under section 340B of the Public Health Service Act
(PHSA) to include certain children's hospitals, freestanding cancer
hospitals, critical access hospitals, rural referral centers and sole
community hospitals.
Section 204 of the Medicare and Medicaid Extenders Act of 2010
(Pub. L. 111-309) revised section 340B of the PHSA by removing
children's hospitals from the orphan drug exclusion described in
section 2302 of HCERA.
Section 1101(c) of HCERA also includes a conforming amendment to
the definition of AMP under Medicaid at section 1927(k) of the Act by
providing that discounts provided by manufacturers under the Medicare
coverage gap discount program under section 1860D-14A of the Act are
excluded from a manufacturer's determination of AMP, effective March
30, 2010.
C. Final Rule With Comment Period Published July 17, 2007
On July 17, 2007, CMS published a final rule with comment period in
the Federal Register (72 FR 39142). The purpose of the final rule with
comment period was to finalize the provisions of the proposed rule CMS
published in the Federal Register on December 22, 2006 (71 FR 77174)
and to allow for further public comment on the AMP and Federal upper
limit (FUL) outlier sections of the final rule. We received a variety
of comments from drug manufacturers, membership organizations,
wholesalers, law firms, PBMs, consulting firms and pharmacists in
support of, and raising concerns with, the AMP and FUL provisions.
However, we note that these regulatory provisions were withdrawn
through the final rule published in the November 15, 2010 Federal
Register (75 FR 69591). Accordingly, we will not be considering the
comments received on the July 17, 2007, rule in this rulemaking
document. Further, because the Affordable Care Act made substantial
changes to the AMP and FUL provisions in section 1927 of the Act, we no
longer expect to publish that final rule and we do not expect to
address those comments in subsequent rulemaking.
D. Other Changes Concerning the Medicaid Drug Rebate Program
We are also proposing changes to address other program issues
related to covered outpatient drugs, including key aspects of Medicaid
payment and the MDR program, such as reimbursement to pharmacies for
the ingredient cost of a drug, determination of AMP for authorized
generic drugs, and the inclusion of territories in the MDR program.
These changes are described in greater detail below under section II.
Provisions of the Proposed Regulations.
II. Provisions of the Proposed Regulations
This proposed rule would revise regulations concerning the MDR
program, set forth at section 1927 of the Act. It implements,
consistent with our general rulemaking authority, sections 2501, 2503,
and 3301(d)(2) of the Affordable Care Act and sections 1101(c) and 1206
of HCERA, which revise requirements concerning the rebate program and
payments for prescription drugs under the Medicaid program. The
specific provisions we propose are described in detail below.
A. Basis and Purpose (Sec. 447.500)
Section 2501(c) of the Affordable Care Act established new
requirements for manufacturers that participate in the MDR program to
pay rebates for drugs dispensed to individuals enrolled with a Medicaid
MCO if the MCO is responsible for coverage of such drugs. We propose to
add Sec. 447.500(a)(4) which would specify sections
1903(m)(2)(A)(xiii) and 1927(b) of the Act as the basis for rebates for
covered outpatient drugs dispensed to individuals eligible for medical
assistance who are enrolled in Medicaid MCOs. We propose to add Sec.
447.500(a)(5) which would add section 1902(a)(30)(A) as an additional
basis for calculating payments for covered outpatient drugs.
B. Definitions (Sec. 447.502)
1. Actual Acquisition Cost
States generally reimburse pharmacies for covered outpatient drugs
that are prescribed and dispensed to Medicaid beneficiaries based on a
two-part formula, which addresses the ingredient cost of a drug and a
reasonable dispensing fee. Each State has the flexibility to determine
the amount it will reimburse for each component of the formula based on
the agency's best estimate of the price generally and currently paid by
providers for a drug marketed or sold by a particular drug labeler and
the cost associated with ensuring that possession of the appropriate
covered outpatient drug is transferred to a Medicaid beneficiary. These
reimbursement formulas are subject to review and approval by CMS
through the State plan amendment (SPA) process.
In general, States currently reimburse for the covered outpatient
drug based, in part, on the estimated acquisition cost (EAC). The EAC,
as currently defined in Federal regulations at Sec. 447.502 is the
agency's best estimate of the price generally and currently paid by
providers for a drug marketed or sold by a particular manufacturer or
labeler in the package size of drug most frequently purchased by
providers. We are proposing to both rename and revise this definition
in this proposed rule.
Section 1902(a)(30)(A) of the Act requires, in part, that States
have methods and procedures to assure that payment for Medicaid care
and services is consistent with efficiency, economy, and quality of
care. In accordance with these provisions and in light of the OIG
reports concerning published prices (OIG Audit reports--A-06-00-00023,
A-06-01-00053, A-06-02-00041),\1\ we believe it is necessary for States
to have a more accurate reference price to base reimbursement for
prescription drugs. Therefore, we propose to replace the term,
``estimated acquisition cost'' with ``actual acquisition cost'' (AAC).
We believe that changing this definition for
[[Page 5321]]
the drug ingredient component of the reimbursement formula to AAC will
be more reflective of actual prices paid, as opposed to estimates based
on unreliable published compendia pricing. While we recognize that
States may not be able to determine the actual price of each individual
drug, payment based on an average of the actual acquisition costs from
a number of representative pharmacies would still fit within this
definition, as data used in the calculation of the average acquisition
cost would be reflective of actual purchase prices for pharmacy
providers. Within this framework, States can develop payment
methodologies consistent with this regulatory definition for their
Medicaid pharmacy reimbursement. Therefore, in Sec. 447.502, we
propose to define actual acquisition cost as the agency's determination
of the actual prices paid by pharmacy providers to acquire drug
products marketed or sold by specific manufacturers. This issue and its
possible effects on ingredient cost reimbursement is discussed further
in both Sec. 447.512 Drugs: Aggregate upper limits of payment and
Sec. 447.518 State plan requirements, findings, and assurances.
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\1\ https://oig.hhs.gov/oas/reports/region6/60000023.htm; https://oig.hhs.gov/oas/reports/region6/60100053.htm; https://oig.hhs.gov/oas/reports/region6/60200041.htm.
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2. Authorized Generic Drug
The definition of ``authorized generic drug'', presently set forth
in Sec. 447.506(a), applies to rebate calculations, as set forth in
subpart I ``Payment for Drugs.'' Therefore, we propose to remove the
definition of ``Authorized generic drug'' from Sec. 447.506 and move
this definition to Sec. 447.502. We would continue to define the term
``Authorized generics drugs'' as any drug sold, licensed or marketed
under an NDA approved by the FDA under section 505(c) of the Federal
Food Drug and Cosmetic Act (FFDCA) that is marketed, sold or
distributed under a different labeler code, product code, trade name,
trademark, or packaging (other than repackaging the listed drug for use
in institutions) than the listed brand drug.
For purposes of the MDR Program, an authorized generic is any drug
product marketed under the innovator or brand manufacturer's New Drug
Application (NDA) approved under section 505(c) of the FFDCA, but
labeled with a different NDC than the innovator or brand product.
Authorized generics are categorized as innovator multiple source drugs
for the purpose of computing the drug rebate.
3. Bona Fide Service Fee
In the July 17, 2007 AMP final rule, we defined bona fide service
fees as fees paid by a manufacturer to an entity that represent fair
market value for a bona fide, itemized service actually performed on
behalf of the manufacturer that the manufacturer would otherwise
perform (or contract for) in the absence of the service arrangement and
that are not passed on in whole or in part to a client or customer of
an entity, whether or not the entity takes title to the drug. The
Affordable Care Act specifies that the AMP shall exclude bona fide
service fees paid by manufacturers to wholesalers or retail community
pharmacies including, but not limited to, distribution service fees,
inventory management fees, product stocking allowances, and fees
associated with administrative service agreements and patient care
programs (such as medication compliance programs and patient education
programs). In Sec. 447.502, we propose to revise our current
definition of bona fide service fees to include these fees paid by
manufacturers to wholesalers or retail community pharmacies.
4. Bundled Sales
In the AMP final rule published on July 17, 2007, bundled sale was
defined as an arrangement, regardless of physical packaging, under
which the rebate, discount, or other price concession is conditioned
upon the purchase of the same drug, drugs of different types (that is,
at the nine-digit National Drug Code (NDC) level) or another product or
some other performance requirement (for example, the achievement of
market share, inclusion or tier placement on a formulary), or where the
resulting discounts or other price concessions are greater than those
which would have been available had the bundled drugs been purchased
separately or outside the bundled arrangement. For bundled sales, the
discounts are allocated proportionally to the total dollar value of the
units of all drugs sold under the bundled arrangement. For bundled
sales where multiple drugs are discounted, the aggregate value of all
the discounts in the bundled arrangement must be proportionally
allocated across all the drugs in the bundle. In response to
manufacturer questions regarding whether a discount and resulting price
for each product in a single customer contract that is independent and
not contingent on the discount or pricing of any other product in the
contract should be applied across all products; we stated previously
that where a discount or price concession is established independently
and not conditioned upon any other purchase or performance requirement
(for example the achievement of market share, inclusion or tier
placement on a formulary), or where the discount is not greater than if
purchased outside of multi-product arrangement, there is no bundle
within the meaning described in Sec. 447.502. Though this is not
addressed in the Affordable Care Act, we continue to agree with our
response to this issue and thus have decided to include it in this
discussion in order to further clarify the bundled sale definition.
Therefore, we propose to add the following clarifying statement to the
definition of bundled sale: The discounts in a bundled sale, including
but not limited to those discounts resulting from a contingent
arrangement, are allocated proportionally to the total dollar value of
the units of all drugs sold under the bundled arrangement.
5. Clotting Factor
The Affordable Care Act established a minimum rebate percentage of
17.1 percent of AMP for a single source drug or an innovator multiple
source drug that is a clotting factor for which a separate furnishing
payment is authorized under section 1842(o)(5) of the Act and which is
included on a list of such factors specified and updated regularly by
the Secretary. Consistent with these provisions, we propose to define
clotting factors as those drugs or products for which a separate
furnishing payment is authorized under section 1842(o)(5) of the Act
and which are included on a list of such factors specified and updated
quarterly by CMS.
6. Covered Outpatient Drug
In accordance with section 1927 of the Act, manufacturers that have
entered into a Rebate Agreement with the Secretary are responsible for
paying rebates to States for their covered outpatient drugs for which
payment has been made under the state plan. Manufacturers are
responsible for submitting required drug product data, including each
drug's NDC. This NDC information is placed on the MDR file and used for
assuring compliance with the statutory requirements.
There have been products identified in the drug product data file
that do not meet the definition of a covered outpatient drug.
Therefore, we believe it is necessary to provide clarification
regarding the definition of a covered outpatient drug in section
1927(k)(2) of the Act and the limiting definition at section 1927(k)(3)
of the Act. Accordingly, we propose to add a definition of covered
outpatient drug to Sec. 447.502.
[[Page 5322]]
We propose that a drug is considered a covered outpatient drug when
the drug may be dispensed only upon prescription (except as discussed
below with respect to certain non-prescription drugs), and it meets the
following criteria as described in section 1927(k)(2) of the Act:
The drug has been approved for safety and effectiveness as
a prescription drug by the FDA under section 505 or 507 of the FFDCA
where the manufacturer has obtained a NDA or under section 505(j) of
the FFDCA where the manufacturer has obtained an Abbreviated New Drug
Application (ANDA);
The drug was commercially used or sold in the United
States before the date of the enactment of the Drug Amendments of 1962,
or is identical, similar or related (within the meaning of section
310.6(b)(1) of title 21 of the CFR) to such a drug; and has not been
the subject of a final determination by the Secretary that it is a
``new drug'' (within the meaning of section 201(p) of the Federal Food,
Drug, and Cosmetic Act) or an action brought by the Secretary under
section 301, 302(a), or 304(a) of such Act to enforce section 502(f) or
505(a) of such Act;
The drug is one which is described in section 107(c)(3) of
the Drug Amendments of 1962 and for which the Secretary has determined
there is a compelling justification for its medical need or is
identical, similar, or related to such a drug and for which the
Secretary has not issued a notice for an opportunity for a hearing
under section 505(e) of the FFDCA on a proposed order of the Secretary
to withdraw approval of an application for such drug under the FFDCA
because the Secretary has determined that the drug is less than
effective for some or all conditions of use prescribed, recommended or
suggested in its labeling;
The drug is a biologic product, other than a vaccine
which--
(1) May only be dispensed upon prescription,
(2) Is licensed under section 351 of the Public Health Service Act,
and
(3) Is produced at an establishment licensed under such section to
produce such product; or
The drug is insulin certified under section 506 of the
FFDCA.
Consistent with section 1927(k)(3) of the Act, we propose that,
except as discussed below, a drug, biological product, or insulin would
not be considered a covered outpatient drug when that drug or product
is billed as a bundled service with, and provided as part of or
incident to and in the same setting as, any of the following services:
Inpatient Hospital Services;
Hospice Services;
Dental Services, except that drugs for which the State
plan authorizes direct reimbursement to the dispensing dentist are
covered outpatient drugs;
Physician services;
Outpatient hospital services;
Nursing facility and services provided by an intermediate
care facility for the mentally retarded;
Other laboratory and x-ray services; or
Renal dialysis.
We further propose that the above exemptions to the definition of
covered outpatient drug for combined services would not apply if the
drug is carved out and billed separately from the service (for example,
an infusion drug and x-ray are billed separately, not as a composite
radiology service; therefore, the infusion drug is a covered outpatient
drug).
Additionally, section 1927(k)(3) of the Act provides that the
definition of covered outpatient drug does not include any such drug or
product for which a NDC number is not required by the FDA or a drug or
biological used for a medical indication which is not a medically
accepted indication. We note that for the purposes of the MDR we use an
NDC format at either the NDC-9, which includes the labeler code and
product code, to identify the product information, or the NDC-11, which
includes the labeler code, product code, and the package code, to
identify the product's package information. We are aware that FDA has a
slightly different NDC format than what is used in the MDR program.
(Please see the discussion under the definition of NDC.) For the
purpose of the MDR program, we will continue to use the current NDC
format of NDC-9, which includes the labeler code and the product code,
to identify the product information and NDC-11, which includes the
labeler code, product code, and package code, to identify the product's
package information. However, if there is change to the current NDC
format as a result of FDA action, then we will issue guidance, as
necessary, to notify the public as well as to explain its impact on the
MDR program.
We are not involved with and do not have oversight for the
designation of the NDC. The FDA requires NDCs for drugs that must be
listed with the FDA in accordance with Federal Food, Drug, and
Cosmetics Act (FFDCA), as amended by the Food and Drug Administration
Amendments Act of 2007 (FDAAA) (Pub. L. 110-85). (21 CFR 207.25(b)(8)).
The FDAAA amended section 510(p) of the FFDCA (21 U.S.C 360) to
explicitly require that registration and listing information (including
the submission of updated information) required under section 510 of
the FFDCA, which includes information from both domestic and foreign
establishments, be submitted by electronic means, unless the Secretary
of Health and Human Services grants a request for waiver of this
requirement because use of electronic means is not reasonable for the
person requesting the waiver.
Section 1927(k)(3) of the Act provides that a covered outpatient
drug does not include any such drug or product for which an NDC number
is not required by the FDA. However, in accordance with section
1927(k)(2), and the requirements of section 510 of the FFDCA, we
propose that a drug, whether prescription or over-the-counter (OTC),
would only be treated as a covered outpatient drug if the drug is both
required to have an NDC and is listed electronically with the FDA. We
believe this additional standard is needed to ensure compliance with
the prescribed drug provisions, FDA approval provisions, and the NDC
listing provisions. Furthermore, this proposal is necessary in order
for us to assure compliance with the drug rebate submission
requirements, for CMS to verify State utilization data and manufacturer
product data, and to assure the correct calculation of the offset
amounts mandated by the Affordable Care Act. Additionally, this
proposal aligns with a proposal submitted as part of the fiscal year
(FY) 2012 President's Budget to require drugs to be properly listed
electronically with the FDA as a requirement to be covered under
Medicaid.
Therefore, if a manufacturer is required to list all of its NDCs
electronically with the FDA, this would ensure that all the products in
the MDR program meet the definition of section 1927(k)(3) of the Act.
In addition, it would permit us to verify State and manufacturer
submissions by referencing the FDA's electronic drug listing
information.
Manufacturers are required to update their registration and listing
information electronically in accordance with FDA's current
registration and listing requirements.
Additionally, in order for us to fully implement these provisions,
we are requiring that manufacturers submit any relevant approved FDA
application numbers. When a product is listed with the FDA, the
manufacturer is required to provide to the FDA the NDC and the
application number, if any, for the product (21 CFR 207.25(b)). An
[[Page 5323]]
application number will help CMS find information on the approval
status to market a drug. See https://www.fda.gov/Drugs/InformationOnDrugs/ucm079436.htm. The application number assists CMS in
obtaining information from FDA as to whether a drug has been approved
under a NDA under section 505 of FFDCA or an ANDA under section 505(j)
of FFDCA. This information is critical to the definition of a covered
outpatient drug under section 1927(k)(2) of the Act. Under the MDR
program reporting requirements, drug manufacturers are required to
report to CMS a drug category for each NDC. The drug category
represents whether an NDC is classified as a brand name drug (single
source drug (S) or innovator multiple source drug (I)) or a generic
drug (noninnovator multiple source drug (N)). We use these drug
category indications to determine the appropriate rebate percentage to
calculate the unit rebate amounts, as well as the offset amounts under
the Affordable Care Act.
We are also aware that some products that do not have an approved
application number may be covered outpatient drugs. For example, we
believe that certain products, such as prenatal prescription vitamins,
potassium chloride, codeine sulfate, and hydrocortisone acetate may
fall into this category. If a product does not have an FDA application
number, in order to be considered a covered outpatient drug, the
manufacturer must provide evidence demonstrating that its products meet
the statutory definition of a covered outpatient drug under section
1927(k)(2) to 1927(k)(4). We will refer to this evidence of
demonstration as covered outpatient drug status, or COD status. We are
seeking public comments on this requirement, and in particular,
comments identifying drugs or classes of drugs that do not have
approved applications but should be deemed covered outpatient drugs.
This submission of data would provide critical information needed
to calculate and verify the accuracy of such drug information.
Therefore, we propose that manufacturers report to CMS the number
of an approved FDA application for a product or otherwise show that the
product meets the statutory definition of a covered outpatient drug
under sections 1927(k)(2) and (3) of the Act, in order for CMS to
calculate the offset amounts and validate product data to ensure the
correct rebate calculation for each NDC in the MDR Program. By having a
correct approved FDA application number or the COD status, CMS can more
accurately determine the unit rebate amounts and product
classification, critical to the rebate percentage calculation.
7. Customary Prompt Pay Discounts
In Sec. 447.502, we propose to add a definition of customary
prompt pay discount to ensure consistent application of such discounts
among manufacturers when calculating AMP. Therefore, we propose to
define customary prompt pay discounts as any discount off of the
purchase price of a drug routinely offered by the manufacturer to a
wholesaler for prompt payment of purchased drugs within a timeframe
that is consistent with its customary business practices for payment.
8. Innovator Multiple Source Drug
As currently defined in Sec. 447.502, an innovator multiple source
drug means a multiple source drug that was originally marketed under an
original new drug application (NDA) approved by the FDA, including an
authorized generic drug. It also includes a drug product marketed by
any cross-licensed producers, labelers, or distributors operating under
the NDA and a covered outpatient drug approved under a product license
approval (PLA), establishment license approval (ELA), or antibiotic
drug approval (ADA). In this rule, we propose to add multiple source
drugs originally marketed under a BLA as the BLA approval process is a
successor to the PLA and ELA and drugs sold under a BLA are explicitly
referenced in the definition of single source drug. To ensure that the
correct drug category is reported for an innovator multiple source
drug, as was discussed in Manufacturer Release 82, we wish to
remind manufacturers, as is consistent with current policy, that an
innovator multiple source (I) drug should be reported to CMS for a
brand name drug that has therapeutic equivalents available. To
determine if therapeutic equivalents are available for a brand name
drug or not, you can access the FDA's Drugs@FDA at https://www.accessdata.fda.gov/scripts/cder/drugsatfda/index.cfm?fuseaction=Search.Addlsearch_drug_name and search by the
Application Number. If therapeutic equivalents are available, then you
will see the link to ``Therapeutic Equivalents'' in the ``Drugs
Details'' page. If there are therapeutic equivalents available for the
NDA or BLA, then the brand name drug should be reported as an innovator
multiple source drug (I) to CMS.
Additionally, over the course of the MDR program, questions have
arisen regarding whether an ``original NDA'' is the same as an NDA and
whether the drug category may be different if a drug is approved under
an NDA. We are proposing to clarify that, for purposes of the MDR
program, an original NDA is equivalent to an NDA filed by the
manufacturer for approval under section 505 of the FFDCA for purposes
of approval by the FDA for safety and effectiveness. In light of this
definition, we are also proposing to use the term ``NDA'' when
addressing such application types for brand name drugs and not use the
term ``original NDA'' when referring to such drugs throughout this
proposed rule.
9. Line Extension Drug (New Formulation)
The Affordable Care Act established a separate calculation for the
unit rebate amount for a drug that is a line extension of a single
source drug or an innovator multiple source drug that is an oral solid
dosage form. Section 1927(c)(2)(C) of the Act, added by section 2501(d)
of the Affordable Care Act, defines line extension to mean a new
formulation of a drug, such as an extended release formulation. We
propose to define line extension as a single source or innovator
multiple source drug that is an oral solid dosage form that has been
approved by the FDA, listed in Drugs@FDA https://www.accessdata.fda.gov/scripts/cder/drugsatfda/application file, as a change to the initial
brand name listed drug in that it represents a new version of the
previously approved listed drug, such as a new ester, a new salt or
other noncovalent derivative; a new formulation of a previously
approved drug; a new combination of two or more drugs; or a new
indication for an already marketed drug. We propose that regardless of
whether the drug is approved under an NDA or a supplemental NDA, if the
change to the drug is assigned to one of the above changes, it will be
considered a line extension drug.
These modifications to the initial brand name listed drug are often
approved under section 505(b)(2) of the FFDCA. A section 505(b)(2)
application is a new drug application submitted under section 505(b)(1)
and approved under section 505(c) of the FFDCA. A section 505(b)(2)
application is one for which one or more of the investigations relied
upon by the applicant to show whether a drug is safe and effective were
not conducted by or for the applicant and for which the applicant has
not obtained a right of reference or use from the person by or for whom
the investigations were conducted. Section 505(b)(2), as described in
FDA
[[Page 5324]]
regulations at 21 CFR 314.54, may be used in certain circumstances to
seek approval of a drug product that represents a modification to a
listed drug product. Examples of drugs that have been approved under
the 505(b)(2) application include drugs with a new formulation, dosing
regimen, change in active ingredient (such as a different salt or
ester, combination product), and/or new drug indication. These types of
drugs are assigned a Chemical Type by the FDA for the new drug
application. A section 505(b)(2) application may be granted 3 years of
exclusivity, may be eligible for orphan drug exclusivity or pediatric
exclusivity. We have included these changes within our definition of
line extension drugs. (See G.2. Treatment of New Formulations for
further explanation of CMS' proposal.)
10. Manufacturer
For purposes of the MDR Program, we propose to clarify our current
definition of manufacturer by revising it to state that a
``manufacturer means any entity that holds the NDC for a covered
outpatient drug or biological product''. This change in terminology is
not intended change the scope of the definition.
11. Multiple Source Drug
On November 15, 2010, we published the ``Medicaid Program;
Withdrawal of Determination of Average Manufacturer Price, Multiple
Source Drug Definition, and Upper Limits for Multiple Source Drugs''
final rule in the Federal Register (75 FR 69591). That final rule
withdrew the regulatory definition of multiple source drug. As
previously noted, section 2503(a)(3) of the Affordable Care Act amended
the definition of multiple source drug set forth in section 1927(k)(7)
of the Act.
Therefore, in accordance with section 1927(k)(7) of the Act, as
revised, we propose to define multiple source drug in Sec. 447.502 as
a covered outpatient drug for which there is at least one other drug
product which--
(1) Is rated as therapeutically equivalent. For the list of drug
products rated as therapeutically equivalent, we will use the FDA's
most recent publication of ''Approved Drug Products with Therapeutic
Equivalence Evaluations'' which is currently available at https://www.fda.gov/cder/orange/default.htm or which can be viewed at the FDA's
Freedom of Information Public Reading Room at 5600 Fishers Lane, Rm.
12A-30, Rockville, MD 20857;
(2) Is pharmaceutically equivalent and bioequivalent, as determined
by the FDA; and
(3) Is sold or marketed in the United States during the rebate
period.
12. National Drug Code
The Drug Listing Act of 1972 requires each registered drug
establishment to provide the FDA with a current list of all drugs
manufactured, prepared, propagated, compounded, or processed by it for
commercial distribution. (See section 510 of the FFDCA (21 U.S.C.
360)). Drug products are identified and listed with FDA using a unique
identifier called the National Drug Code (NDC). Under FDA regulations
in 21 CFR part 207, the NDC is identified as a 10-digit, 3-segment
number. The first segment, the labeler code, is assigned by the FDA. A
labeler is a firm that manufactures the drug, including a repacker or
relabeler, or a firm that distributes the drug under its own trade name
or label. The second segment, the product code, identifies a specific
strength, dosage form, and formulation for a particular firm. The third
segment, the package code, identifies the trade package size and type.
Both the product and package codes are assigned by the firm. The NDC
will be in one of the following configurations: 4-4-2, 5-3-2, or 5-4-1.
In this proposed rule, we clarify that even though FDA currently
uses a unique 10-digit NDC, for the purposes of the MDR program and
this subpart we will continue to use an NDC format with the NDC-9,
which includes the labeler code and the product code, to identify the
product information and the NDC-11, which includes the labeler code,
product code, and package code, to identify the product's package
information. Manufacturers may include a leading zero in the product
code or the package code segments of the NDC in order to arrive at the
5-4 NDC-9 or 5-4-2 NDC-11 when reporting their product to the MDR
program.
13. Noninnovator Multiple Source Drug
As currently defined in Sec. 447.502, a noninnovator multiple
source drug means: (1) A multiple source drug that is not an innovator
multiple source drug or a single source drug, (2) a multiple source
drug that is marketed under an abbreviated NDA (ANDA) or an abbreviated
antibiotic drug application, and (3) a drug that entered the market
before 1962 that was not originally marketed under an NDA.
In addition to a noninnovator multiple source drug as described,
currently, there are other drugs on the market that have not gone
through the FDA approval process, including but not limited to certain
prescription pre-natal vitamins.
Therefore, we propose to amend the definition of a noninnovator
multiple source drug to also include these other drugs that have not
gone through FDA approval process but otherwise meet the definition of
``covered outpatient drug''. However, if any of the drug products
listed in this amended definition of a noninnovator multiple source
drug subsequently receives a new NDA or ANDA approval from the FDA, the
manufacturer must change the reporting of the product's drug category
to correlate with the new product application type and furnish the
appropriate information.
We also propose to amend the definition of noninnovator multiple
source drug to clarify that for purposes of Medicaid payment and rebate
calculations, the term shall include noninnovator drugs that are not
therapeutically equivalent.
14. Oral Solid Dosage Form
CMS proposes to interpret oral solid dosage form in accordance to
the FDA regulation at 21 CFR 206.3, which defines solid oral dosage
form to mean capsules, tablets, or similar drug products intended for
oral use. We also clarify that although FDA regulations at 21 CFR 206.3
uses the term ``solid oral dosage form,'' section 1927(c)(2)(C)
specifically used the term ``oral solid dosage form'' in reference to
the treatment of new formulations. Therefore, CMS will treat the term
``oral solid dosage form'' to mean the same as FDA's ``solid oral
dosage form.''
CMS proposes to further interpret an oral route of administration
as any drug that is intended to be taken by mouth. In accordance with
these provisions, CMS is providing manufacturers with guidance in order
to assist them in determining which drugs should be considered as oral
solid dosage forms (please see Table 1). This list will be updated
based on any changes to the FDA's definition of solid dosage forms.
[[Page 5325]]
Table 1--List of Oral Solid Dosage Forms
------------------------------------------------------------------------
------------------------------------------------------------------------
Bar, Chewable Capsule
Capsule (Immediate/Complete Capsule, Coated
Release) (Hard Or Soft Gelatin,
Chewable Or Perle)
Capsule, Coated (Hard Or Soft Capsule, Coated Pellets
Gelatin)
Capsule, Coated, Extended Release Capsule, Delayed Action (Hard Or
Gelatin, Coated, Enteric Coated)
Capsule, Delayed Release Pellets Capsule, Enteric Coated Pellets
Capsule, Extended Release Capsule, Film Coated (Hard Gelatin)
Capsule, Film Coated, Extended Capsule, Gelatin Coated
Release
Capsule, Hard Gelatin Capsule, Liquid Filled
Capsule, Repeat Action Capsule, Soft Gelatin
Capsule, Soft Gelatin Liquid-Filled Capsule, Sustained Action (Hard Or
Soft Gelatin, Coated, Film Coated)
Dispersible Tablet ...................................
Granule, Delayed Release Granule, Enteric Coated
Gum (Chewing, Medicated) Lollipop
Lozenge Pellet, Coated, Extended Release
Tablet Tablet (Immediate/Complete Release)
(Coated, Film Coated, Sugar
Coated, Multilayer, Uncoated,
Buccal, Chewable)
Tablet, Chewable Tablet, Coated
Tablet, Coated Particles Tablet, Controlled Release
Tablet, Delayed Action (Coated, Tablet, Delayed Release
Enteric Coated)
Tablet, Delayed Release Particles Tablet, Dispersible
Tablet, Enteric Coated Particles Tablet, Extended Release
Tablet, Film Coated Tablet, Film Coated, Extended
Release
Tablet, Multilayer (Coated, Film Tablet, Multilayer, Extended
Coated) Release
Tablet, Orally Disintegrating, Tablet, Orally Disintegrating
Delayed Release
Tablet, Repeat Action (Coated) Tablet, Soluble
Tablet, Sugar Coated Tablet, Sustained Action (Coated,
Film Coated, Multilayer, Uncoated)
Tablet, Sustained Release, Film Tablet, Uncoated, Lozenge
Coated
Tablet, Uncoated, Lozenge, Tablet, Uncoated, Troche
Lypophilized
Tablet, Sustained Action, Membrane Pastille
Controlled
Troche/Lozenge Wafer
------------------------------------------------------------------------
CMS would not consider the following as oral solid dosage forms
because these dosage forms are intended to be made into a liquid or
suspension prior to oral consumption.
Table 2--List of Other Dosage Forms
------------------------------------------------------------------------
------------------------------------------------------------------------
Capsule, for Microemulsion Granule, Effervescent, for Solution
Granule Effervescent Tablet, Effervescent
Granule, Effervescent, for Solution Tablet, for Solution
Granule Effervescent, for Tablet Effervescent for Solution
Suspension
Granule, for Oral Suspension Tablet, for Suspension
------------------------------------------------------------------------
15. Over-the-Counter (OTC) Drug
With the exception of certain tobacco cessation drugs for pregnant
women, or an EPSDT service, section 1927(d)(2) of the Act currently
allows States to exclude from coverage or otherwise restrict coverage
of OTC drugs. We propose to add a definition of OTC drugs in order to
clarify which products would be treated as OTC drugs in the Medicaid
program. This definition is consistent with our current policy and
would not change how these drugs are treated for purposes of coverage
under the Medicaid program. We propose to define OTC drugs as drugs
that are appropriate for use without the supervision of a health care
professional such as a physician, and which can be purchased by a
consumer without a prescription, although for Medicaid coverage a
prescription continues to be required. OTC drugs may be marketed under
an approved premarket application (NDA or ANDA) or in many cases, may
be marketed under an OTC monograph. In some instances, FDA permits
these drugs to be marketed under a monograph that is not yet final
(such as where there is an OTC tentative final monograph), as stated in
21 CFR part 330 and FDA guidance. Unlike NDAs which are based on
premarket approval of specific, finished drug products, monographs
specify the active ingredients, indications, dosages, and claims that
can be made by the OTC drug products.
16. Pediatric Indications
The Affordable Care Act established a minimum rebate percentage of
17.1 percent of AMP for single source and innovator multiple source
drugs approved by the FDA exclusively for pediatric indications. To
implement this requirement, we propose to clarify which drugs will be
subject to this minimum rebate percentage. In regulations at 21 CFR
201.57 and 21 CFR 201.80, the FDA defines pediatric use for most drug
labeling to mean use for pediatric populations and pediatric patients,
that is, ``the pediatric age group, from birth to 16 years, including
age groups often called neo-nates, infants, children, and
adolescents.'' Accordingly, given the statutory amendments, we propose
to define ``a drug approved by the Food and Drug Administration
exclusively for pediatric indications'' to mean a drug product approved
by the FDA exclusively with indications for pediatric use, with the
pediatric age group defined from birth to 16 years. Drugs that are not
approved and labeled exclusively for pediatric use, that merely
reference use in children in any part of the labeling, or that receive
a supplemental indication for pediatric use, will not qualify for the
minimum rebate of 17.1 percent of AMP as specified in section
1927(c)(1)(B)(iii) of the Act. In accordance with the statute, we
propose to apply this definition only to drug products whose FDA-
approved labeling includes only indications for children from birth to
16 years of age. Drugs without this explicit age labeling will not
satisfy the requirement that the drug be approved exclusively for
pediatric use and will not qualify for the minimum rebate of 17.1
percent of AMP. We are proposing to apply such a definition only when
this specific pediatric age cohort
[[Page 5326]]
appears in the ``Indication and Usage'' section of the FDA-approved
labeling.
17. Professional Dispensing Fee
The definition of dispensing fee will remain unchanged as it
already enumerates those costs to dispense a drug that the pharmacy
incurs. However, we propose to replace the term ``dispensing fee'' with
``professional dispensing fee'' as drug ingredient cost is only one
component of the two-part formula that States generally use to
reimburse pharmacies for prescribed drugs dispensed to Medicaid
beneficiaries; and, we feel that this change from ``dispensing fee'' to
``professional dispensing fee'' reinforces our position that once the
reimbursement for the drug is properly determined, the dispensing fee
should reflect the pharmacist's professional services and costs
associated with ensuring that possession of the appropriate covered
outpatient drug is transferred to a Medicaid beneficiary. Therefore, as
States change their payment for ingredient cost, we also propose to
require States to reconsider the dispensing fee methodology consistent
with the revised requirements.
18. Single Source Drug
As currently defined in Sec. 447.502, a single source drug means a
covered outpatient drug that is produced or distributed under an NDA
approved by the FDA, including a drug product marketed by any cross-
licensed producers or distributors operating under the NDA. It also
includes a covered outpatient drug approved under a BLA, PLA, ELA, or
ADA.
As previously stated in the discussion of the proposed changes to
the definition of innovator multiple source drug, for purposes of the
MDR program, we have defined an original NDA as an NDA filed by the
manufacturer with the FDA for purposes of approval for safety and
effectiveness. Further, we wish to remind a manufacturer that as long
as it has an approved NDA number issued by the FDA, a drug is
considered to be a single source drug and is required to be reported
with as an ``S'' drug category to CMS under the MDR program unless
there are FDA approved therapeutic equivalents. To determine if
therapeutic equivalents are available, you can access the FDA's
Drugs@FDA and search by the Application Number. If therapeutic
equivalents are available for the NDA, then you will see the link to
``Therapeutic Equivalents'' in the ``Drugs Details'' page. If there are
no therapeutic equivalents available for the NDA, then the brand name
drug should be reported as an ``S'' to CMS.
19. States
Currently, for purposes of this subpart, the term ``States'' is
defined as the 50 States and the District of Columbia. However,
excluding the territories from this definition of States prevents them
from receiving manufacturer rebates through the MDR program. We
recognize that the territories have, over the years, expressed an
interest in participating in the MDR program and that such rebates
would in part offset the costs of providing Medicaid drugs. We have
decided, in accordance with section 1101(a)(1) of the Act, to propose
revising the definition of States to include the 50 States, the
District of Columbia, and the territories (the Commonwealth of Puerto
Rico, the Virgin Islands, Guam, the Northern Mariana Islands and
American Samoa). Therefore, for drug rebates, we believe it is in the
best interests of the Medicaid program to include the territories in
the definition of States so that they may achieve the savings that drug
rebates provide and we propose that the definition of States should be
revised accordingly. We also acknowledge that there may be concerns
with the territories participating in the MDR program; therefore, we
request comments regarding the inclusion of the territories in the
definition of States.
20. United States
Similar to our review of the term ``States'', we also examined our
use of the term ``United States''. As with the term ``States,'' we
defined United States only to mean the 50 States and the District of
Columbia. However, section 1101(a)(2) of the Act provides that when
used in a geographic sense, the term ``United States'' means, except
where otherwise provided, the States. In accordance with this
definition, we think it is reasonable to conclude that in this context,
the term is used in the geographical sense in that it contemplates the
sales of drugs in any of the States. (Please see section II.K. Upper
limits for multiple source drugs (Sec. 447.514) of the preamble for
further discussion on the sale of drugs on a nationwide basis.)
Therefore, for the purposes of this subpart, we propose, in accordance
with section 1101(a) of the Act, to define the ``United States'' to
mean the 50 States plus the District of Columbia and the territories as
described above.
21. Wholesaler
The Affordable Care Act added a definition of the term
``wholesaler'' at section 1927(k)(11) of the Act. We propose to adopt
that definition and define wholesaler to mean a drug wholesaler that is
engaged in wholesale distribution of prescription drugs to retail
community pharmacies, including (but not limited to) manufacturers,
repackers, distributors, own-label distributors, private-label
distributors, jobbers, brokers, warehouses (including manufacturer's
and distributor's warehouses, chain drug warehouses, and wholesale drug
warehouses), independent wholesale drug traders, and retail community
pharmacies that conduct wholesale distributions.
We are not proposing that a wholesaler be licensed by the State
inasmuch as that is not a requirement of the Act, in comparison to the
definition of retail community pharmacy, where State licensing is
required. In considering how to clarify this term, we reviewed the
definition of ``wholesale distributor,'' that appears in section 510(g)
of the FFDCA, and regulations at 21 CFR 807.3(s), which provide that
the term ``wholesale distributor'' means ``any person (other than the
manufacturer or the initial importer) who distributes a device from the
original place of manufacture to the person who makes the final
delivery or sale of the device to the ultimate consumer or user.''
While this definition is helpful, it does not provide additional
clarity to the definition in the Act. Therefore, we are proposing to
define wholesaler a